Without a shadow of a doubt, all businesses start with an idea. Sometimes the idea fizzles out while a few would reach fruition and succeed. But what if you have a business idea at a time when you’re broke? Would you ditch the idea or will you still pursue it with all your might? Indeed, your answer to those questions will clearly define your future.
And that’s exactly how one wannabe entrepreneur named Draymond John started his business. At the onset, John had to sew his own hats and sell them for $10 apiece in the busy streets of New York City. It sure doesn’t sound like he’s going to make it. But he was determined. Recruiting his mother to help him start his business idea, they obtained financing of about $100,000 by mortgaging their house. That’s how they obtained their startup capital.
On the side, Draymond John would launch FUBU (an acronym for For Us By Us) while working full-time at Red Lobster. That’s how one of the wildly successful American apparel brands started. Today, FUBU is a household word as hip hop apparel while John is a known shark starring on the widely-acclaimed TV hit series Shark Tank.
If you’re wondering if your business idea will be able to survive and make it big time, worry not. We might not be able to guarantee your success, but we surely can help you with your first step in business: financing. Below are some ways you can get your startup capital even if you’re broke and wrapped in debt.
Explore Formal Financing
It goes without saying that if you’re under heavy debt, you won’t be able to rely on your monthly cash flow as funding for your business. It’s important, therefore, that you weigh each funding option before you apply for any possible source. Some of these options include credit card financing and alternative lenders.
A key consideration is the amount of burden each particular financing scheme will give you personally. While you may be able to get affordable financing options via lines of credit and loans that carry low-interest rates, chances are these lenders will require the business owner’s very own personal guarantee.
That means you’ll have to personally guarantee the loan’s repayment should the business not be able to do so. In the long run, that could put a huge burden on your shoulder and stress your personal life even more. On the other end, financing that won’t require a guarantee would be much more expensive.
Credit cards may not be the best idea too as they won’t be able to help you build business credit; instead, they can wreak havoc on your personal credit.
In addition, look into the nature of the lender if you go for a loan. A revenue-based lender also called a subprime lender, will focus more on your business bottom line and your personal credit. Though they underwrite less, the downside is they carry bigger interest and punch bigger numbers.
Another option for you is to look into cash flow-based lenders. These lenders focus more on your business cash flow. And that includes your personal expenses and accrued debts.
Look for a Wealthy Partner
It’s always best to look into the number spread over the years when looking for viable financial options when you’re down on cash. In a way, it’s like the refinancing of your home mortgage.
Depending on your situation, you can always tap alternative home financing such as a no-cost mortgage loan. With such an option, the lender refinances your mortgage by factoring closing costs and other fees into the new loan monthly payments. You won’t have to shell out money out front just to avail of the loan. In short, it’s pretty convenient.
Of course, the trick is to run the numbers to see which option is best for you. For one, Draymond John obtained financing via a home mortgage.
Another great way for you to finance your business is to find someone who has the money. A partner with loads of cash means you can get the business off the ground faster. Check out a relative or a friend to borrow.
The good news is with a friend or a close relative, there’s a good chance you can borrow free of interest. That’s assuming your business will succeed fast. Draymond convinced his mother to invest in his business.
You can also recruit your friend/relative to be a partner. But that would mean you’ll have to cede some control of the business. And that requires a formal process. Or you can just recruit a business partner altogether, which comes with its own pros and cons.
Consider Alternative Sources of Funding
Well, you can go the way of most tech start-ups: angel investors. Angel investors invest in businesses that they think will give them a good return of their money. Facebook and Apple are some tech firms that started with angel investors from the onset.
The thing is angel investors want in. They offer cash in return for equity in the business or convertible debt. Today, many of these angel investors have pooled their resources to act as a network.
There are many ways you can find financing for your business even if you’re broke or are wrapped in debt. It may not be a guarantee you’ll succeed but it’s definitely a great start. And it was one big leap that made Draymond John’s FUBU brand happen.