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4 money-raising tips for your new company

You have a great idea that you think will be a best-seller. Unfortunately, you don't have the capital to get the project rolling. Funding a new company is one of the largest stumbling blocks for entrepreneurs to overcome, and it can prevent thousands of intelligent product ideas from turning into reality. In today's world, raising money is easier than ever with new technological tools that provide innovative solutions to an age-old problem.

1. Personal loans from family and friends

Most entrepreneurs dread the idea of asking family and friends for money. Regardless of how you feel about approaching your loved ones, this may be the least complicated way to get the funding you need to launch your business.

When it comes to legalities, you should never borrow money from a family member or friend without a written contractual agreement that covers every single detail of the loan. These terms may include the repayment period, the loan amount, the interest rate, the consequences of non-repayment, and the repayment total for each installment.

2. Customer financing or pre-sales

Customer financing or pre-sales can work to fund a business when done correctly. In a typical business situation, customers buy a product, and that money continues to fund the future production of more products. Without the capital to start the business, it's difficult to create something for customers to buy.

Entrepreneurs may turn to pre-sales or customer financing by asking customers to place a down payment or full payment on their product before it is manufactured. The downside is that any unexpected disruptions with manufacturing the products can result in very angry customers.

3. Crowdfunding

Crowdfunding started as a way to finance unique ideas from entrepreneurs, and has evolved into a place where money can be raised for almost everything. Using a crowdfunding platform like Indiegogo or Kickstarter, entrepreneurs pitch their idea to potential customers and the backers purchase the product before it is made. The entrepreneur then has the capital to turn an idea into reality.

The downside to this approach is that crowdfunding platforms often charge a fee, and the return for investors can vary in form and size, based on the project.

4. Purchase order financing

When a company runs out of capital to fulfill a customer order, the next step may be to turn to a purchase order financing company. The business owner "sells" orders to the purchase order company, and is given the capital to continue making the product.

The downside to P.O. financing is that the company usually offers cash amounts lower than 90 percent, and charges a fee that can be anywhere from 2-5 percent.

The right approach for your business

Choosing the right financing approach for your idea can be tricky without the right advice from those who understand the law. An experienced legal professional can help you determine which option is best for your unique situation.

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