Five Financial Tips for Funding a Start-Up

Most start-up companies have some of their biggest problems getting out of the starting blocks. Every young company struggles to find financing in its infancy. If you're considering launching one, take a good look at a home equity loan as a funding source.

Building a start-up company may be a dream to many entrepreneurs, but finding funding can be a real nightmare. Because there are so many new businesses started every day, the amount of capital available to a fledgling company tends to be limited. If you're planning to launch a start-up, don't despair. You do have options: Here are some tips on where you should look for financing.

1. Home equity loan

While the founders of Google built their empire on credit cards, you may find a home equity loan to be a more prudent financial choice. Rates are generally very good on home equity loans, and the interest you pay is tax-deductible. Many financial institutions will give you the loan without questioning your intentions for the money. One caution: Your home is being used as collateral for the loan. If your business goes belly up, you run the risk of losing your home, as well.

2. Financial institutions

Most small businesses think of banks or credit unions as the natural choice for loans. However, both lenders are reluctant to dole out money to a start-up. They'd prefer to see a business with at least two years under its belt. In addition, they'd like you to use assets as collateral, which may be difficult if your company doesn't rely on big pieces of equipment, or own a building.

3. Friends, family and private investors

If you have friends or family members who are doing well financially, they may be willing to invest in your company. These arrangements can be very informal, but should involve some written documentation to prevent conflicts down the road. Use caution with this type of arrangement. You could potentially jeopardize a close relationship if business goes bad.

4. Venture capitalists and angel investors

A misperception about venture capitalists is that they're willing to throw big dollars at any start-up. In reality, they tend to spend their dollars on ventures in the later stages of development.

Angel investors are far more likely to help. These are private individuals who typically invest anywhere from $50,000 to $2 million-there are individual angel investment societies all over the country.

5. Government grants

The government helps fund start-ups, particularly if they're minority-owned or defense-related. If you can fight through the bureaucracy and the waiting period, you could score some big-time capital.

Start-ups have been glamorized by the skyrocketing success of companies such as Google and countless other tech firms. But for every one of these success stories, there are hundreds of dismal failures. Entrepreneurs can still pursue their dreams in today's market, but they'll need to consider a variety of different financing sources to make their visions realities.