As a teenager, starting your own business is both exciting and rewarding. Most business’s are launch-able without to much funding, and for a teenager, any cash that they need can usually be obtained via personal savings, extra work at the local time-for-money pass-time, borrowings from parents, or purely increasing sales. However at some point in time a business may require a capital injection to take it to the next commercial level. Unless you have a considerable personal savings, or are independently wealthy, chances are you will need to secure funding from another source. There are several options to secure extra capital, ranging from business loans, venture capital, government grants, personal credit cards, and of course family.
However it will be critical to do some work as any funding agent will require you to be knowledgeable about your business and where it is going, and be able to see that you have quantified performance aspects of your business for direction and measurement. In this regard, it will be necessary to produce an in depth business and marketing plan. And the stronger the plan the better are your chances of securing the funding needed.
Business planning can be expensive too. It is important to understand that it need not be, and you can obtain free or relatively inexpensive advice and tools from most sources. Your bank should be able to provide business planning software, and if they can not I would worry a little about your bank. Most accountants should be able to give you assistance also, and remembering that you will need an accountant at some point, they should be trying there best to look after you. At the very least they may look for an exchange – some advice and services for your custom. Be ready to negotiate and be also ready to walk away – politely of course.
Put as much as you can into your business plan. It’s worth the effort. The more detail the better. The business has to stack up, and what you say physically must be supported by what you say in paper. If the opportunity arises try to get some assistance from somebody already in business for themselves. They can help you significantly. But I cannot emphasize this enough. In fact its a simple exercise but many people do it poorly and if you do it well it will stand out immediately.
The first place to try is banks – (note plural). Bank loans are common and banks do need to lend money as it is part of there business model. And they need to have a part of their portfolio in small business. However it can be expensive compared the rates larger companies get, and or mortgage lending. Why I use banks (plural) is because at any one time some banks will be more “willing” than others to provide small business funding, depending on what cycle they are in. So do not be disheartened by a a very high reluctance from the first bank. Check out all the banks if necessary if for nothing else than the exercise. If your business plan is good, and your business is viable, you should get the interest of at least one bank.
In many countries a range of agencies offer a business grant. A grant is usually partial funding for a business that you will be provided the option of paying all of, a portion of, or in some cases none back to the lender. Grants are provided to individuals and businesses by central government, regional development agencies, the chambers of commerce, universities, some grant providing agencies (like an industry union) and even charities. In particular governments offer grants to help stimulate commercial enterprise, particularly when there is downturn or even recession (hint hint). Typically there are terms to the grant that you must adhere to in order to keep the funding and/or not repay the money. When this funding is available it is worthwhile exploring purely for the repayment flexibility.
Venture capital is another common form of business funding. ‘Angel Investors’ is usually the term associated with these organizations, and they provide start up capital, or loans to businesses in the form of investments. There is usually an onerous amount of obligation sought by venture capitalist, and they may seek to hold up to 55%(or more) of your business’s share capital. They will invest in existing companies that are doing well that seek to expand and have a clear business plan with a long term growth potential for both the business and the investor. You need to have your wits about you when entering into venture capital contracts and make sure you are dealing with reputable and honorable investors. I recommend getting sound advice when going down this path. However a there is much that can be gained from a good relationship with a venture capital partner, and often you find that funding is never a problem again.
Personal credit cards are another option. It is not a strategic method and you are really following a path of unplanned financial management. However if you do not require much then this is a feasible method. Be sure you can manage this kind of debt as interest rates are usually high and if you are not able to manage your debt it will affect your credit rating. Be certain that your sales and cash flow will permit you to manage this type of lending.
And finally there is the tried and true – parents or key family members. This is not a bad option so long as you look after that capital. It could be really important to your family’s financial health to see that money returned safely, and therefor this is a relatively good option from the perspective of really ensuring you take care of that capital. If you are not completely certain that you can make it work then avoid using family money.
It is possible to raise your own capital. If you are game enough then you could seek funding through a network or a group in return for shareholding in your business. At some point you may look at this anyway for purely different reasons. However you more than likely have some serious legal and reporting obligations, other than your commercial set up requirements, and it may not be worth all the fuss to meet these obligations. At least not yet.
These are all the main methods for obtaining extra funding for your business. There are many others, including variations of the above. If you are in the situation that cash flow is big enough to fund your growth then you do not need to visit this. However the exercise is a good one for experience if nothing else. To see the machinations of all the lending institutions is worthwhile and you never know when you may come across a really useful teenage business idea from meeting some of these people.