Lionel Hounkanrin ’15 is on a mission to help entrepreneurs identify and develop funding and business expansion opportunities. In addition to being a treasury analyst and working with entrepreneurs in the Washington D.C. area, in 2016, Hounkanrin realized that millennials need help and education in terms of personal finance. As a result, he wrote and publishedMoney-Smart Millennials: How to be Financially Stable in Your Twenties and Early Thirties to provide tips on money management, career development, and income diversification as a response to their needs. Hounkanrin also owns and operates moneysmartmillennials.com, a website that provides advice on personal finance as well as career and entrepreneurship tips.
Hounkanrin recently provided a few best practices for entrepreneurs looking to fund and expand their business opportunities.
Bootstrapping or self-funding
Joe wanted to start a photography business. He created a blog with an e-commerce platform through WordPress. Then he ordered flyers and business cards from Vistaprint and through some word of mouth, his business was launched. His initial investment was less than $500. Obviously, Joe's business did not require a large initial capital which consisted of hundreds of thousands of dollars. Are you in a similar position? If you are, follow in Joe’s footsteps and do not delay starting your business.
Depending on the type of business journey you're embarking on, you may need a few extra thousand dollars more than Joe’s photography business. The idea is to come up with the money using your own resources. Many entrepreneurs use their savings or personal debt (a home equity line of credit for example) to self-fund. In general, this route is used by business owners who need a relatively small investment.
Friends and family
When your own savings are insufficient, consider reaching out to your trusted family members and friends before opting for a business loan. Regardless of the relationship, it is still important to treat this route as a business transaction. Invite your friends to invest in your company with the understanding that just like any other enterprise, risks are involved. As professional and prepared as you would be presenting a business plan to a banker, I recommend having the same mindset with your family and friends.
Be careful on choosing the right people. Potential losses incurred by your business may create awkward family relationships if your investors are not true risk takers and supporters.
Angel investors
You are probably familiar with the reality TV show Shark Tank. Of all the reality shows that I've watched, it is in my opinion, the closest to reality. The show allows budding entrepreneurs to present their ideas and businesses to three investors for the one and only goal of winning financial support and mentorship. You may not be able to get on Shark Tank but the opportunity to be funded by an angel investor (affluent individual who has the network and the financial resources to provide startup capital) is available to you. In exchange, the angel investor may request ownership equity in your business.
Angel investors can be found through a local chamber of commerce, on the internet and through networking.
Business loan
A commercial bank loan may be your only option. First, reach out to local lenders who offer Small Business Administration (SBA) loans. The SBA has a variety of programs suitable to new entrepreneurs.
It is possible for a starting business to obtain a loan from a traditional bank. However, it is usually difficult because most financial institutions would require several years of activity and tax returns to secure a loan. Essentially the objective of this requirement is to avoid issuing bad loans. Do not be discouraged as through a process of partnering with the bank, you will be able to get credit. Start by establishing regular deposit accounts as well as business credit cards. Once the bank is familiar with your company and has a history of credible transactions, you may be able to apply for a business loan and get approved. Start low, $25,000 to $50,000, and then prove your solvency by paying it back.
Although there are more ways to get funding for a new business, these four methods are the basic funding tools which any entrepreneur can use. With passion and persistence and by developing a proper business plan, you will soon secure funding to launch your dream enterprise.
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