Here is the toughest part of your journey: Financing your project.

        I refer to all of my potential businesses as projects, mostly so I do not grow a personal attachment to them. As much as I love all of my companies, I have over the years learned to let go of projects that I lose control of. Creating an emotional attachment to your idea can allow you to accept the wrong decisions and deny the right ones, purely based on a bias opinion. Sometimes, its best to look with a bird-eye-view of the project without you in it, and evaluate it like you would be getting paid to do as a consultant.

        Before you even get to the Financing step, make sure you know exactly how much your project is going to cost. Please refer to the “Creating a Project Budget” article if you have not priced out your idea yet. Once you have a final number on exactly how much it will cost to turn that key for your first day of business, it comes time to the most stressful part of the project.

        Finding money to start your business is my least favorite part of opening a business. I have not done a project in full cash yet, and I don’t think I ever will. This is a part you need to know well, because even if you don’t use one of the following methods for your next project, you might use it for another. It is best to know every option you have available to you well, so you can make an educated decision about the option you choose.

These are the few options you have in pricing your project, and we will dive into them deeper:

  • Cash (Even if you can cover the budget all cash, it’s not always best to use all or most of it to do so)
  • Financing through a bank or private lender
  • Friends and family (how to ask them and how to pay them back)
  • Venture Capitalist or Angel Investor
  • Creating stocks for your company (yes, you can create stocks for even a starting LLC) and selling/financing them.



        If you extra of it, lucky for you. But if you project is projecting to cost 80k, and you have 90k, it’s wise to explore the other financing options in case you end up needing some emergency funds. You could run into an unforeseeable expense, or need to grow your business faster than expected. It is nice to have a cushion cash fund on the side if you have the option to have one. If you don’t cash that cushion, it’s ok; most of us didn’t.

Financing through a bank or private lender:

        This is my least favorite step. If you can qualify for an SBA loan, that’s fantastic. But they are far more complicated, annoying, and time delaying. If your credit score is above 700, I recommend applying for a loan through the Small Business Association (SBA) which is ran by the government. If you own any sort of hard asset with some sort of equity, you might want to put up some of it as collateral in order to apply for a lower interest rate. But finding a financing partner like a bank is a lot like swimming with sharks. It is a very cut throat way to take, and the bankers will not be kind to you once they find out they can’t approve you for a loan. There will be a lot of hard credit inquiries in this step if you don’t plan ahead.

        SBA loans are generally your lowest interest rate asking loan. However, you need to fit through their hoops to get qualified. I’ve seen people be held up to get an answer from an SBA loan for two to three months. Before you apply, you should have all your ducks in an order. If you go on the government SBA website, you can find a list of your local SBA lenders and call them for more info before applying. Generally, they will give you a to-do list of everything you need to have to apply. Do not take this step lightly, as they ask for a lot of detailed paper work. Refer to “SBA Loan: What should you know about them.” I highly recommend reading that article for things banks might not tell you.

        For example, if you are buying a business with an SBA loan instead of opening one, the seller needs to have pretty darn clear tax returns for you to qualify for the loan. If the seller’s taxes are not in order, you will get denied for the loan. If you don’t qualify for an SBA loan, I highly recommend against any third party finance borrowing. Any interest rate above six percent could result in you working every day to pay off interest rates or defaulting on their loan.

         If you are going to take a very high interest loan because you have to open your business no matter what, take these next few tips very seriously. Make sure you are making the right decision. Do not allow yourself to be emotionally compromised and end up going very far into a debt hole. There is a massive industry to take advantage of the dreamer business owner, and I would hate for you to feed that industry any further.

        Something that usually makes me feel better of someone taking that high interest loan is future orders. No matter what type of business you are starting, try to get future orders. Go around your neighborhood and your sphere of friends and ask for order commitments. No matter how strict you want to be in making their commitment, at least you have a stronger chance to get those initial orders to pay off that scary loan. You do not want to default on those, they will take your business down.

Friends and Family:

        This step is always really embarrassing for the first time Friends and Family borrower. I highly recommend that you do not just reach out your palm and ask for money, because there are much better ways to ask to not compromise your relationship with those people and increase your chance of approval. Keep in mind that you are close with this person, so they might already know all your faults and focus on those faults while deciding to approve your wish or not.

        They might not think your idea is successful because they are not passionate or educated about your idea like you. When you ask, be prepared in writing, on paper, your detailed budget you need for this project with line by line items of exactly where their loan will be going to. When you are asking for the loan, stress the fact that you will be investing your whole existence in this project, and give them some soothing incentives to lend out. These incentives can include market rate interest rates, a royalty from the sales of this business, or the dreaded giving equity to them. Without their loan, this project might not happen. Treat them with the respect they deserve to be, and do not take them for granted.

Venture Capitalist or Angel Investor:

        This is actually my favorite method of financing. Throughout your life, you will meet some fortunate and hard working people who might not value the amount you need for your project as much as you do. They might have access to much more cash from their earlier life in doing business, and might want to invest that sitting cash into a fun or exciting new project. If you want to get in on this method of financing, you are going to have to be that fun and exciting new project. However, you have to keep in mind that these people are generally very educated in lending money, since they probably went through a similar step you are taking.

        They are not people like your family and friends who only will go off of the information you give them. They will probably ask a lot of questions, so be prepared for that. Questions like “how much is your customer acquisition cost” usually require an answer without hesitation to qualify for this type of loan. There are some people in the networking industry who will want to sign a contract with you to find you financing in exchange for a percentage fee.

Creating stocks for your company:

        This is a very complicated option. If you want to take this path, please approach with caution. I have never used this step to finance a project, but  you might use it at one point in your life. I have seen people start business this way, and they generally do well because they’ve done it so many times. The only drawback from this step is needing to have some sort of asset in the company to be able to get the company appraised, divide the appraisal into a number of stocks, and offering that stock to investors to buy. These stocks do not need to pay dividends, and could even have aggressive buy back options set by the issuer.

        I could try to give an example of when this could work: You can create an LLC in hopes of purchasing a building, co sign on that buildings loan, get the LLC appraised (since it owns the building), divide that appraisal into the worthy stocks, sell some of those stocks to have enough financing for a flip project, finish the construction, sell the re-developed building for a higher price, pay off your investors and you keep the profits. Of course in between those general steps, there is a lot of work, but you get the idea.

        No matter which method you want to use to finance your next business, choose very wisely. Do not be scared to turn your back on a project if the numbers do not make sense. Follow your gut, and a mistake is only a mistake if you do not learn something from it.