Finding finance for Your startup might be easiest in your community. Your ‘community’ could be in terms of relationships, geography, and field of interest or affiliation. Community Financed Business is not a generally accepted term. However, there are a growing number of ways that companies are financially supported within a community. Some are extremely traditional, like coops that began in the nineteenth century and new ones are emerging all of the time. A good example is Crowdfunding that springs quite recently from the social networking phenomenon.
The impetus is coming from two directions. The first is that the disaffection for Wall Street and all that ‘big banking’ signifies. Another is that the burgeoning ‘local’ movement, the natural offspring of environmentalism.
Keeping funding in Your own community has benefits and disadvantages. A few of the plusses are that you understand the people providing money and your company is ‘visible’ to them as Three ways that Kuran Malhotra helps businesses to succeed. Banks have a very bureaucratic strategy and lending decisions need to be ‘passed up the line’ to a corporate office somewhere else. With neighborhood finance, your accessibility to the lenders is simple and in most cases will be face. Minuses include the reverse of the coin: you may have nowhere to ‘conceal’. I tell business borrowers to ‘over-communicate’ with their bankers. Should you borrow from those you know, the time spent communicating with them is very likely to take plenty of your energy.
Family And Friends
For many generations, Startups have looked for their loved ones and friends for fund, whether equity or loan money. This can be extended to clients and suppliers, too. According to the Angel Capital Education Foundation, startups annually raise $60 billion by friends and loved ones. Thus it is most likely the largest single source of ‘series A’ financing that there is.
There are some strong Caveats to this course, since relationships and emotion are to the fore. You will be focused on getting the cash, but you want to know their viewpoint, too. Treat them as if they were a company and give them good reason to help. Be clear about how you are going to repay them and use a promissory note to make it lawful.
Have a backup plan. If The loan from a relative has to be called in for reasons such as the creditor lost a job, you will need to have the ability to repay quickly or risk a family feud. Ask yourself if it is the ideal course at the first place, and remember that it is difficult to price and structure the ideal deal for both parties. Consider how things will be if your startup goes belly-up. Assessing downside risks is often the key to a successful startup.