Now, this one might seem illogical at first. How can customers help finance your new business if it isn't even a business yet?
The trick is to use your business plan and your charm to convince people to become your customer even before your business is off the ground. Let's say, for example, that you want to start a company that builds custom computers for videogame enthusiasts. You build a prototype of your computer, bring it to a videogame convention and a large computer retailer wants to buy 1,000 units.
You don't have supplies to build 1,000 units and no bank is going to give you a loan to cover the costs since you're working out of your parents' basement. You can have the retailer sign a letter of credit saying it will pay for the 1,000 units upon delivery [source: Entrepreneur]. With that letter of credit, you can convince suppliers to offer trade credit until the computers are delivered.
Here's another customer-based technique. Let's say you're a hairdresser with a loyal clientele. If you decide to start your own beauty salon, you might want to ask your long-time clients to become investors. Throw in free haircuts for life, and you may have yourself a deal.
For lots more information about starting a new business, follow the links below.
Related HowStuffWorks Articles
More Great Links
- Advani, Asheesh. "Private Loans & Investments: Raising Money from Family and Friends." FindLaw. (April 23, 2009)http://smallbusiness.findlaw.com/starting-business/starting-business-financing/money-from-family-and-friends.html
- Bankrate.com. "Credit Card Averages." April 20, 2009.http://www.bankrate.com
- Consumer Reports. "How to finance a new business." April 2008. (April 20, 2009)http://www.consumerreports.org/cro/money/credit-loan/how-to-finance-a-new-business/overview/how-to-finance-a-new-business-ov.htm
- Entrepreneur. "6 Sources of Bootstrap Financing." April 20, 2009http://www.entrepreneur.com/money/financing/selffinancingandbootstrapping/article80204.html
- Entrepreneur. "Angel Investors." (April 20, 2009)http://www.entrepreneur.com/money/howtoguide/article52742.html
- Entrepreneur. "Bank-Term Loans." (April 20, 2009)http://www.entrepreneur.com/money/howtoguide/article52728.html
- Entrepreneur. "Trade Credit." (April 20, 2009)http://www.entrepreneur.com/encyclopedia/term/82538.html
- FindLaw. "Raising Money for Your Small Business: Loans vs. Equity Investments." (April 20, 2009)http://smallbusiness.findlaw.com/starting-business/starting-business-financing/starting-business-financing-loans-equity-compared.html
- Lindner, Melanie. "Where Credit Still Flows." Forbes. March 24, 2009. (April 20, 2009)http://www.forbes.com/2009/03/24/social-lending-credit-entrepreneurs-finance-credit.html
- Smart Money. "Should you borrow from your 401(k) or 403(b)?" Dec. 14, 2000. (April 20, 2009)http://www.smartmoney.com/personal-finance/debt/should-you-borrow-from-your-401k-or-403b-9657/
- Sugars, Brad. "The 6 Biggest Mistakes in Raising Startup Capital." Entrepreneur. Sept. 20, 2007. (April 20, 2009) http://www.entrepreneur.com/startingabusiness/startupbasics/startupbasicscolumnistbradsugars/article184350.html
- U.S. Small Business Administration. "Entrepreneurs Seeking Financing." (April 20, 2009)http://www.sba.gov/aboutsba/sbaprograms/inv/esf/inv_sbic_financing.html
- U.S. Small Business Administration. "Micro-Loans." (April 20, 2009)http://www.sba.gov/services/financialassistance/sbaloantopics/microloans/index.html
Starting a bank requires a good business plan, raising capital and going through a complex regulatory process.