Startup Funding: Getting Cash

“He (Bezos’ Father) wasn't making a bet on this company or this concept. He was making a bet on his son, as was my mother,” said Bezos.

The downside to this type of financing is to risk damaging a life-long relationship with a friend or loved one due to the inability to repay. For some, this may be too much to bear.

For those not interested in such arrangements, other options are available.

Going into Debt

The idea that banks are less interested in investing in small businesses is wrong. From 1995 to 2004, small business loans increased180 percent from 5 million to 14 million, according to the Small Business Administration. Currently there are over 6,000 banks and BHCs (bank holding companies) operating in the small business market.

An advantage of taking out a business loan is that debt is a tax deductible expense. Another is that creditors are satisfied by not having an ownership stake as long as repayments are made according to schedule.

Foreclosure is often the last resort. However applying for a bank loan does require a credit check. A bad credit history could easily impact the ability of the applicant to obtain the funds. Last but not least, a solid and well thought out business plan is essential.

Angels and Venture Capitalists

For companies which have started but need a cash influx to go to the next level, Venture Capitalists and Angel investors could be a the way to go. The latter can provide from hundreds of thousands to millions, depending on whether the company involved has good prospects and a firm plan with some previous success. Angel investors, on the other hand, could provide more of a mentoring role along with the cash needed to get going.

The “Angel investor” generally wants less control of the company and a slower return on investment than a venture capitalist (VC). The latter usually wants a stake in the company along with a high return rate, above 20 percent per year.