Undercapitalization can doom a new business to failure before it can even get out of the gate. Businesses that lack sufficient cash or other liquid assets to survive through the early stages of growth often fail within the first two years.
You may have the training, business experience, or enough good intuition to know how much it will take to weather the financial strain of start up and growth. Most often, the hard part is figuring out how you will generate the necessary capital to move your business to the next level.
The answer depends on how much capital is “enough” and what methods of obtaining it are available to you. For instance, your own savings or low-interest loans from family members may be the easiest source of capital to come by, but (1) is it enough money, and (2) are you willing to accept the fact that Thanksgiving dinner tastes different when you eat it with your creditors? Other options may be a better fit for you.
Secured loans, such as a home equity line, can be a source of capital. But consider whether you (and your spouse) are willing to put your home at risk for the business. Unsecured loans generally cost more in higher interest rates, but may carry less risk for the borrower.
Investors are another possible source of capital. Venture capitalists are investors who invest in your business in exchange for part ownership. This type of financing is a type of equity financing, and the investors may require a management role as a condition of investment.
Be sure you understand any proposed contract with a lender or investor before you sign. At Scolieri Law Group, P.C., our experienced business law attorneys can help you evaluate your capital funding options, draft or review contracts, and offer legal assistance in all other aspects of growing your business. Contact us today at (412)765-0546 or firstname.lastname@example.org.