The initial capital to finance your own business idea could be from your personal savings. Just make a plan as to your initial financial requirements, and assess how much time you require to save up that much money.
Having your own stake in your idea will also serve as a motivating factor when the going gets tough.
Loan and Overdraft from Banks and Financial Institutions
There are probably several banks in your locality, city and state that offer loans to small business owners. Contact those banks and read through their fine print to figure out their terms and your obligations.
If you are confident that you can repay the loan regardless of whether your business succeeds or not, you can go ahead with it and have them finance your venture. However, you should always be responsible about taking loans and be sure that you can return them.
Similarly, several countries also have governmental programs to finance small business owners on low interest rates. Contact your local state bank to find out whether any such programs are being offered in your state.
If your idea has potential, you can easily acquire funding through governmental grants and angel investors. Ask around to learn about local expos and startup demonstrations where you can pitch your idea to potential investors.
These investors will however require a complete plan from your end, including your revenue model and how you intend to grow their investments. Having the answers to all these questions will determine whether you get financing or not.
Invoice discounting works for businesses which have started making sales. You basically borrow money for your business in advance on the basis of sales invoices which are due to be paid.
Financial institutions often lend money in such cases, after they have verified your sales register and are sure that you can repay the loan once your customers pay.
If you have contacts and a good standing in the business community, you can make use of trade credit, which can be a bigger source of financing than bank loans. This typically works between businesses, when you acquire goods or services from another business on credit, with the promise of making payment later (presumably once you have sold off the goods for money).
Trade credit can save you a lot of initial capital, especially since you won’t have to purchase everything with immediate payments. However, in case you fail to sell the goods or make a loss, you will still owe the supplier the same amount of money in the stipulated number of days or months.
Borrowing from Private Lenders
Private lenders are easy to find and often work in an individual capacity. However, the money they lend always comes with a higher interest rate than the market value. On the bright side, you can get immediate financing without long waits and tons of paperwork.
Once your business is off the ground you can also learn more about your government’s tax concession and rebate plans, which can allow you to skip tax payments for a certain time period, or pay reduced taxes. The money you save here can then be invested in the business.