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Saturday, February 28, 2015

Sources of Funding for Your Business Product or Service

thinking man
Let's say you have a great idea and you want to bring it to market. You've drawn up the design, built a prototype, and have started to apply for the appropriate copyrights, trademarks, and patents. Now you need funding for production. Here's a quick overview of what you should consider:

  • Private or venture funding (think "Shark Tank")
  • Crowd funding
  • Grants
  • Family or friends
  • Banks
  • Corporate sponsorships
Venture capitalists will give you money in exchange for an investment in your company in the form of shares or an active role, providing you meet their criteria which can vary widely. If you go this route, you should be already into your start-up since they are going to want financials. Not for the complete beginner.

On the other hand, crowd funding isn't quite so demanding. True, you should have a kick-ass proposal and a good video. You should be willing to give something to your investors, such as a free product. Some crowd funding sites require you to meet your monetary goal before you will get the money.

Is your idea grant-worthy? Products backed by serious artistic scholarship, scientific research, or technological wonders may qualify you for a grant. Look for websites listing foundations that give out grants and see what they fund. You should tailor your request to match their criteria exactly. You may need to be a non-profit organization to get the grant, but not in all cases.

Most people start out with family and friends. If you decide to go this route, make sure you draw up a contract so that everyone knows what they are getting into. Don't think that you don't have to do this because, well, they are family! Nothing causes hard feelings more in families and friendships because they thought they were giving you a loan and you thought it was a gift. 

Do you have a relationship with your bank? It's worth nurturing one before you get into serious business. Your bank is more likely to give you what you want if they know you and you have a good financial record with them. A bank loan can be guaranteed by the Small Business Administration if you meet their criteria.

One of the less common methods of funding your enterprise is with corporate sponsorship. If you have a related product that a company may see as good public relations for them you might have a deal. An example of this may be a how-to book that you have written which uses a company's product. Think of how you might tie your product to a well-known company. Before you do this, make sure you have all your legal protection (copyrights, trademarks, patents) in place or have the company sign a non-disclosure agreement. The potential for abuse exists, so be careful.

In all of these cases, you must have defined your product, its potential market, and what is needed (financials, manufacturing plan, etc.) to get it into production. Do your homework.

A good place to start is the U.S. Small Business administration. To go to their site, click here.