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Startup’s looking to sources other than banks for funding

A recent USA Today article discusses people using their 401K’s to finance their new business. This has always been an option some people have used, but with the paralysis of local banks courting start up enterprises, 401k’s have become an even more important and frequently used option. Along with finding an investor, borrowing from relatives, peer to peer lending, and loans against what equity people still have in their homes, 401K’s are a frequent go to source these days for funding.
At the UNF Small Business Development Center, we understand the need for alternative financing. The prospective business owner however needs to think about a number of things before leaping into a funding scheme including:
  • Do you have a plan? Just because you are not pursuing a bank loan (they require a plan) doesn’t mean you shouldn’t think things through on paper. You need a blueprint and a plan is just that.
  • Is it scalable? If you can’t get funding for the $200,000 idea you have, what is your back up option? How low can you go and still make the business work in this economy? Having scalability in mind is an important part of negotiating with investors and an integral step in understanding your business model.
  • Keep it real. if you want to open a restaurant, do you really have to have brand new equipment? You can lop off huge amounts of start up funds when you get innovative and frugal with your equipment needs.
  • Talk to experts not friends. Friends are encouraging. That is why they are friends. Are they experts or just fans? Look to experts to give you an objective viewpoint. The SBDC at UNF is a good source of objectivity.

Look before you leap and do your homework. Many people just open a business with no thought or due diligence aforehand. That is why so many businesses fail in their first three years.

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