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Aspiring entrepreneurs often encounter the discouraging challenge of raising the required capital or seed money for starting a business. This critical factor often puts the brakes on the passion for most wannabe entrepreneurs, leaving them stuck at square one.

If you’re about to start a business, get a reality check on where you’ll most likely get your seed money source so that you can focus your energy on getting the capital from them.

If you have no existing business, here are which institutions to avoid:

• Banks. Banks seem the likeliest candidate because that’s where cash practically lives, however banks are in the business of managing risk and not getting their necks out for nothing—the possibility of which, unfortunately, is too high for a startup that has no track record of survival. If you have no assets you’re willing to lose and guarantee in favor of the bank, you’ll get nothing.

• Credit cards. Credit cards have been written up in literature as a great source for short-term capital. In credit card lingo, short-term means one month. Credit cards are wisely used when you know that you already have the cash in the bank or are sure that it will arrive by the next pay date. The obligation and the capacity to pay are equally balanced. Exceeding that period by paying the minimum balance means paying for funding at rates you can’t assume at this stage. If you’re a startup, getting into this critically short funding period without the equivalent guarantee of covering it is financial suicide.

• Small-to-Medium Enterprises fund institutions. These financing institutions have the mission to develop small and medium enterprises; in fact, that’s their reason for being. Unfortunately, if you have no business to show, you won’t get any financing. These institutions normally support only entrepreneurs with assets, equity and collateral (no matter the variant) to show—in short, only those that exist and are able to show the business’ viability. If you’re a startup, you’re not even in their radar.

• Rich investors. Usually they are not interested in your line of business. A person who got rich on his/her own right means s/he was good at what s/he did. If you bring them to unfamiliar ground, this would seriously challenge what s/he knows s/he’s good at, and therefore, reduce his/her interest of funding your venture. Approaching a potential rich investor without doing research on his/her own business interests, his/her stage in life, and his/her general approach to doing business is a deal killer.

Find your starting capital/ seed money from what you already have.

Examples are as follows:

• Your personal savings. You have to at least have cash to spend as you build the business. Even if you find someone who will fork out the initial working capital, you will be reaching into your own pockets for all the preparatory work to sell the idea in a viable form (e.g. professional proposals, prototype, corporate identity, etc). If you come in without any money or have undertaken some prep work in building the semblance of a business, it will be a hard climb. If you don’t show some skin, people will think you’re not that interested in your proposed business to risk your own money.

• Friends and family. Your warm circle who love and support you. They’re your litmus test to check whether anyone outside of yourself will actually fund your idea.

•Suppliers. As a credit source, they provide one of the best—what you need when you want them. If you make them a preferred supplier or guarantee specific terms or rates over competition, you may be able to get what you need for your own business without shelling capital from day one.

•Profits from your business. Fueling your business with its own profits might be a slow climb but this is indubitably a sound strategy. Keep your hands off the cookie jar and instead, plow back as much money as you can in building the business. By the time you get around to external financing, others will see how much you’ve vested in a steadily growing business and would be enthusiastic to lend you more capital.

Source:
Navarro, Evangeline. "Where do I find seed money to start-up 
my business?" 2 May 2011. The Manila Bulletin. 
Accessed 2 May 2011. Link Here.

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