Facebook Share

Monday, January 01, 2007

Going Solo? Ways to finance the start-up

Going solo is not cheap, though it is not as expensive as you were likely led to believe either. Like L Gordon Moore, I was under the impression that it would cost me ~$100,000. Actually, I did it for ~$40,000. $40,000! If you could invest $40,000 to get a lifetime of return in guadruple+, you would, right? If you are planning on going solo, here are some ways you might consider to finance your endeavor.
  • Family: Turn to family for either a lone or a gift. This might be the best way, but it is a lot to ask of your family, and of course whether or not this is an option for you depends on your own personal situation.
  • Use your savings: I don't recommend this. The fact that you have savings is phenomenal, but depleting it is foolhardy because when your own cash reserves are gone, your other financing options are severely limited. The better approach is to use your own savings/cash reserves to secure a low interest loan that you can pay back slowly over time. While you are paying your loan back, your own capital is growing, hopefully, at a rate higher than your loan's interest rate. If it isn't, re-evaluate your investment strategy.
  • Bank loan: If you own a house that the bank can use to secure the loan, obtaining a loan is a pretty good way to obtain financing at reasonable interest rates. If you don't own a house and don't have money in savings, this can be a tough one to secure.
  • Business line of credit: This is a great option. Unfortunately, it is generally not available to start-ups, since most lenders require you to show at least 1-2 years of revenue before they will even consider your application.
  • The credit card game: If you have good credit, most credit card companies will offer you 12-18 months of interest free lines of credit, often up to $25,000 each. Caution! This is a dangerous game to play and if it is not approached with tremendous discipline, you run the serious risk of a aquiring a life-time of debt and financial ruin. However, if you have the capital in the form of savings that equals or exceeds your borrowed ammount, and you have the cash flow to pay off the total credit card balance within the introductory period, the credit card game method can be pretty good.
  • Leasing: Most vendors either offer leasing through their own companies or via 2nd party lenders and the monthly payments typically are pretty good. For example, an $8000 flexible endoscope can be leased for ~$250-350 per month for 5 years. However, if you do the math on the lease, you'll see that your paying double digit interest rates. But still, a lease can be a good option in the right circumstances and may even be ideal in the early start-up phase when cash is tight.