Unless you have funds specifically set aside to create your business, you will need startup capital. This can be achieved either through debt or equity financing. Debt essentially means that you borrowed the money with interest, whereas equity is when an investor gives you money in return for some ownership of your company. The start-up capital needs of your business will determine what kind of financing will be used.
Debt financing can be done via three methods: credit cards, bank loans or government funding. If your business will not require very much start-up capital and it can recover the funds in a few weeks, such as you need to purchase a laptop computer for a consulting business, you may consider using a personal credit card. Although many start-up sole proprietorships do this with the owner's’ personal credit cards, it is not advisable, simply for the fact that credit cards carry large interest rates. In addition, using credit cards as term debt financing can seriously hurt your credit history and make obtaining future funds more difficult.
If you choose not to take loans to finance your business, you will need to use equity. Equity financing can be as simple and small as having a friend front several thousand dollars to be your business partner. If your business will need more, perhaps millions of dollars in funding, you could consider going to a venture capital firm or approaching angel investors. As you would if you were going to approach a bank for financing, you will need a detailed business plan. You will need to know that business plan inside and out because you will present that plan to potential investors, and they will ask you many questions.
