5 funding options for start-ups

A new company needs enough cash to pay the bills until the work can support itself. How much, and for how long, depends on the business. There is no single right source of that cash. Each option below has a cost, and some of them cost you control.

Before you raise anything, know the number you actually need, how long it has to last, and whether the books can support the story you are telling a lender or an investor. A cash-flow forecast and a clean file — see accounting — are how you get that number. Your credit will also come up, often including a personal guarantee.

This is a map, not a recommendation to take any particular financing, and it is not an offer to broker a loan.

1. Your own money (bootstrapping)

Putting your own cash or assets into the company is the simplest structure. You keep control. A later lender or investor will often want to see that you already have something at risk.

The risk is obvious: if the company fails, that money is gone, and a personal guarantee on a related debt can follow you home. Fund this way only if you can do it without putting the household in a hole you cannot climb out of.

2. Friends and family

People who know you may lend or invest on terms a bank will not offer: a lower rate, a longer runway, a handshake you still need to put in writing.

The cost is the relationship. Write the terms down anyway — amount, interest, repayment, and whether they are lenders or owners. If the company hits a rough stretch, they feel it with you. Do not take money a relative cannot afford to lose.

3. Angel investors and venture capital

Outside investors put in capital in exchange for equity, and often for a say in the company. Venture firms typically look for businesses they believe can grow quickly and return more than the check. Angel investors are often individuals; some also offer advice or introductions. Either way, you are selling a piece of the company, and sometimes a board seat or reserved powers.

If you go this way, understand the terms, the dilution, and whether the investor has actually worked in your kind of business. "Smart money" is only smart if the experience is relevant.

4. Incubators and accelerators

These programs can offer some combination of a small investment, workspace, mentoring, or a structured program, usually in exchange for equity or for a fixed term. They are not identical — some are built around a lab or a campus, some around a short, intense curriculum — and they are not a fit for every company.

Read what you give, what you get, and what happens when the program ends. A brand name on the program is not the same thing as a fit.

5. Loans, grants, and other public or bank funding

Banks, credit unions, and government-backed programs (including, for many US small firms, programs described at sba.gov) offer loans. Grants and some tax incentives exist too, usually with eligibility rules and more applicants than awards. A grant you do not have to repay is still not "free" if the application and the compliance cost more than the award is worth.

A new owner should expect a lender to ask for a real plan, a way to repay, and often a personal guarantee. Do not sign one you have not read.

Choose on purpose

Know the amount, the runway, and how much control you are willing to give up before you take a meeting. The wrong money can be more expensive than waiting.

Fifteen minutes is free. Call (844) 222-9653, or start at unchainedfs.com.