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This is the third installment in the “How to Start a Video Production House” series. In the previous post I talked about the making of a business plan; in this one, I will talk about some of the ways you can finance your business.

I found that there are countless ways for someone to get funds to start their business venture. Based on what I learned, there are three general categories: Lenders, Investors and plain old Self-Financing (or Bootstrapping). It is important to keep in mind that in a lot, if not all cases you will be partly responsible for funding the venture. In other words, you are not going to get every cent you need from lenders and investors; you will have to cover the rest of what you need.

I would like to start with Self-Financing or Bootstrapping. By the way, the term Bootstrapping is new to me and I learned it means; doing as much as you can with what you have got. In order to finance your business yourself, you can:

• Tap in your 401(K): if you have one from a previous employer, but watch out for tax penalties.
• Sell Assets: have you got things you can sell?
• Home Equity: if you are well on your way with your home mortgage, you can borrow against the equity.
• Insurance Policies: if you have life insurance, you can requisition a policy loan since they usually garner cash value after some years.
• Investments: you can borrow from the 401(K) your current employer provides. There is usually a specified repayment schedule and a limit to how much you can borrow, and if you lose your job, you have to repay the loan very quickly.
• Use Credit Cards: nothing new here, just make sure you can keep with the monthly payments to prevent a catastrophe.
• Use Your Savings: if you are like most people are not or cannot be; you spend less than you make and put money in the bank, then there is a chance you have some good savings you can use to fund your venture. After having considered that you have kids to feed, monthly responsibilities and any emergency that might come up, that is.
• Use Your Certificates of Deposit: if you have a CD, you can (depending on the bank) use it as collateral for a loan and as long as the terms of the loan are met, the balance of the CD remains intact. If the loan cannot be paid, then cash from the CD will be used to service it and early withdrawal penalties will be incurred as well.
• Use Your Individual Retirement Account: as I understand it, you can use the money from your IRA, but you must pay it all back within 60 days or there will be penalties. Usually, the risk with these types of assets is that if you withdraw funds to invest elsewhere and that investment yields no returns, you must still pay back what you borrowed.
• Borrow from Friends and Family: this is as convenient as it is problematic, in my opinion. Because while it does not have all the requirements that a bank has, it does have all the hassles, which can lead to trouble. The norm is to get everything, everything, everything in writing to eliminate any misunderstandings and any: “When are you going to pay me back?”

You can also take out loans. All banks offer loans, but I think (and correct me if I’m wrong) that one should bypass your everyday banks and go straight for the Small Business Administration. They offer a number of programs that are of great benefit to small businesses, and beats having to deal with banks directly.

• 7(a) Loan Guarantee Program: the Small Business Administration guarantees you a loan from a lender. Usually the guarantee is for about 75% of the loan amount.
• The LowDoc Program: is a low documentation loan that relies on your own personal credit rating and the cash flow of your business.
• The Fastrak Program: similar to the LowDoc program, but with speedier results.
• Caplines: is a revolving line of credit that works like a credit card.
• Women and Minority Loans: usually up to $250,000, “middlemen” help you shop around for the best loan, help with the paper work and send it to the SBA.
• The Microloan Program: handled by non-profit intermediaries that help you with the application process. These loans are usually short-term, are no more than $25,000 and have variable interest rates and maturity dates.
• 504 CDC Loan Program: long term loans with fixed rates, for fixed assets.
• SBICs and SSBICs: these are privately owned small business investors.
• Disaster Assistance Loans: these are loans provided directly by the Small Business administration and is typically used by businesses in trouble.

Finally, you can opt for investors. There are different kinds of investors and, in a nutshell, they invest in your business for financial gain. You can find them through your broker or financial advisor.

• Individual Investors: these are lone wolves that use their personal wealth to fund ventures.
• Angel Investors: these are individuals or firms that offer financing in exchange for equity.
• Venture Capital: this is funding provided to new companies with potential for rapid growth and expansion. It is usually provided in exchange for company shares (partial ownership).
• Businesses: some businesses, I believe Google does this, offer cash to businesses in exchange for partial ownership.

I myself like the idea of the bootstrapping and self-financing. But that is just a sentiment, because I know what I have and I know what I’m willing to risk or sacrifice. That however, does not mean that it is the best option or the option that makes more sense and, it all depends on how complete a business you are looking to start. By this I mean, starting at home by yourself; or renting space, equipment and hiring help. Ultimately this is a call for the individual entrepreneur to make, based on his or her needs and wants.

In the next post in this series, I will focus on “Individual/ Sole Proprietor, LLC or DBA.” And once again, I want to reiterate that this is a learning experience for me; I need all the help I can get. If anyone out there sees any inconsistencies or can offer information that I failed to mention, by all means step in, it will do nothing but help. I have started a thread about this in the forum, feel free to comment and offer your insights there, as well as on the comments section of this post.

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Related posts:

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  3. How to Start a Video Production House: The Business Plan
  4. How to Start a Video Production House: Buy or Rent Equipment
  5. How to Start a Video Production House