I am often asked: what is the best way to finance a new business. This question is usually followed by "So, did you ever invest in new businesses?"

The answers, respectively, are as follows: 1. there is no "best" way to fund a new business, and 2. How to invest in new businesses, but damn I can not today because I left my checkbook in my other suit.

The truth is that there are a variety of ways to finance a new business and how it is best for you depends entirely on your product, your market, your financial needs, their burn rate, and most importantly, your personal and financial situation .

So with that in mind, here are some of the most common ways to finance a new business without hitting old Tim for a loan. Note that all methods have advantages and disadvantages and some (or more) may not work for your specific situation. No matter what financing method you choose a full investigation into the ups and downs and not jump with both feet until you are sure that the land on the mainland.

Savings and investments

The first source you should consider is to use their own savings and investments. I'm a big fan of self-financing when it comes to business, and that does not make you responsible to others if the business fails. The downside is that if things go under, the money will go down with the ship. If you are unwilling to risk their own capital will certainly not be willing to risk anyone else.

Friends and family

After playing their own savings and investments, many entrepreneurs turn to friends and family for help. This works well for some, but here's the creed I live by: NEVER borrow money from anyone, you have to eat Thanksgiving dinner with. Nothing causes tension in the family like lending money that is never returned. And notice I say "cash loan" instead of investing money. Venture capitalists invest money. His relatives lend you money. They expect it back someday, even if they say no. Remember, when a loved one invests in your business that are emotionally invested in you. It would be hard to tell mom and dad that their favorite son lost their life savings because their business went down the drain.

Credit Cards

If you decide to finance your business in the plastic note that you will pay extremely high interest rates on the money you've borrowed and if you do not get paid big hit for money for many years to come.

Mortgage The Farm

Bank loans are nearly impossible to get if you have no collateral and a history of success in business, so many entrepreneurs use the equity in their homes to finance their business after being rejected for a bank loan. While this makes more sense than building a business in a deck of credit cards, financial risks are no less abundant. You must pay this money if your business succeeds or not, but it is a good source of money at low interest to start and the interest may be tax deductible (consult your accountant to make sure).

Angel investors

An angel investor is typically a wealthy individual who invests in new companies with a share of the property. Investors are usually the first formal investors in a business and provide seed money to get the business going. Some investors will write a check and you are left alone to run your business, while others consider their investment a license to "help" manage and make decisions. If we accept angel money make sure the terms are clearly defined by both parties. Angel money always comes with strings. Make sure you know whether those strings come in the form of a bow or a noose before you accept a visit from an angel.

Venture capitalists

Venture capitalists are angel investors as pit bulls are chihuahuas. That does not mean that all CVs are large dogs, bad, but they have powerful jaws that can chew and spit your business if things do not go their way. VC money does not come with strings, comes with chains and locks and a lot of legal documents. VC always have the upper hand in any deal to invest in it the way it works and that is the price you pay for access to venture capital money.

If your business reaches the level that VC money becomes a viable option, do not jump on the first bone a VC hangs in his eyes. If one VC likes your idea, others will too. Present to multiple VC and carefully consider each offer before accepting the check.

Just remember, no matter how you finance your business, use the money wisely. Do not buy $ 1,500 plasma monitors and $ 1,000 Herman Miller chairs.

Have a clear plan of how the money will be used and how they will be paid.

And remember, the more you can shoestring the business, but rather the business you will own in the end.