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Startups and financing

Colorado residents who want to start their own business may not be sure about how to finance their venture. However, there are several options they can pursue.

Friends and family can be a good source of financing for a startup. In fact, they are the primary source of startup financing for small businesses. In a 2017 survey regarding small business, 26 percent of those responding stated that family and friends were the most dependable capital source.

Friends and family can gift funds as a goodwill gesture, or they can be made investors and given a stake in the business. Any money that is borrowed should be treated like a loan that was obtained from a credit union or bank. The proper loan documents should be drafted, and there should be a repayment plan that includes interest.

Some may prefer to make their friends and family investors, as they will not have to pay back the money they received. However, entrepreneurs who pursue this option should be aware that friends and family who become shareholders may want to have a significant say in how the business is managed.

Personal credit cards are another good source of financing for a startup. Nineteen percent of business owners believe that they are a dependable source of financing. Because the startup will not have its own credit history, owners should be prepared to use their own personal credit cards in the beginning. It is important to keep in mind that if the debt is not managed carefully, using credit cards as a source of business financing may be risky.

An attorney who practices business law may provide a number of business formation and planning services. The attorney might assist clients with drafting contracts for investors. Assistance may be provided for creating the entity under which the business would operate.

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