Ah, the good ‘ol days. The “Roaring 90’s”. A time when an entrepreneur only needed a unique idea and a business plan to secure millions of dollars in venture funding. The entrepreneur then spent the next year getting great office space, wonderful furniture, a foosball table and people with fancy titles. Many even found time to work on creating a product. And why bother finding customers when it was easier to find money. But the year 2000 put an end to that kind of fun, leaving many of us, including myself, wondering, what was in the Kool-Aid we were all drinking?

In 2003, we find ourselves back in the world of business fundamentals. Historically, the best sources of capital have been from one of the three “Fs” (founders, families and friends). Although these sources still remain a solid method for financing a new business, more than ever – you, as the founder will be your own financer.

Businesses have traditionally been “customer financed”. Throughout history, the would-be entrepreneur was asked by someone to solve a problem for them and was offered money to accomplish this task. The new “customer” was satisfied and asked the entrepreneur to do it again. The business then spread its services to new customers and was subsequently born.

This method of capitalization works well in a service oriented business, but may not be successful in one that needs more money for product development.

Alternatives Sources of Capital
I have listed some of the alternative sources of capital that I have personally used to develop businesses over the last 15 years. Each of the sources below may differ based upon how you have formed your company (sole proprietor, partnership, S Corp, etc.) so make sure to check with a financial advisor for more detailed information.

Borrow from your Retirement
Many 401K and IRA plans allow you to borrow from your retirement savings for a limited time without penalty. Just be sure you can pay it back on time or there are big penalties!

The Cash Value of your Life Insurance
Many life insurance policies enable you to borrow part of the cash value of the policy and pay yourself interest on the borrowed money. Although it may not be popular in your household, don’t forget to look at your spouse’s policy too!

Home Equity Loans
With interest rates being low and tax deductible, this a good place to look for capital to start your business. Please ensure that you can pay the additional payment even if your business fails or you may lose your house, which will not be a popular outcome with your spouse, especially if you have already borrowed from your life insurance policies!

Employees
Ask your employees to loan money to the company at a favorable rate and add a stock option sweetener. When employees invest in the company, they feel a added interest in its success.

Credit Cards
This is the fabled first line of capital for many entrepreneurs and arguably the most dangerous. Rates can be high and minimum payments low. But if you are unable to pay back the credit extended in a timely manner, it can lead to a financial death spiral for you and your business.

Cash Flow as a source of cash
Keeping cash flow current is vital to the success of the company and decreases the need to use credit cards or loans to stay current. There are several tricks for making this happen:

1) Collect monies people owe you on time. Be merciless.

2) Try to get deposits for products or services in advance.

3) Negotiate extended terms on money that you owe your vendors. You may be able to even pay a bill with a credit card after 45 days and with that, extend your payment another 30 days.

4) If you have inventory, keep it low and “turn” it as frequently as possible.

5) Keep your monthly fixed costs low. Hire only employees that can produce revenue or collect cash for you.

6) Don’t sign any long term rental leases. Real estate is currently a buyer’s market so look for attractive subleases for 6-12 months.

7) Finally, learn to read a cash flow statement. Remember that cash is not only king, but it is also the face card in your business deck. To borrow from a popular political phrase, the rallying cry of any startup business should be “It’s the Cash Flow, Stupid!”

By paying attention to the sources of capital available to an entrepreneur you can grow your business so you can reach milestones that will qualify you for angel or venture capital.