How to fund your startup

Welcome to episode 4 of PWTA! Today we discuss 10 different ways that you can fund that product based business. This is the topic we get ask the most about from our audience but the truth is, there are countless ways you can fund your business. Unfortunately, too many good business ideas die because the founder just wasn’t able to secure the funding to make it reality. Here are some topics we discuss in todays episode: 

  • 10 ways you can fund your product based business
  • Real world examples of how RT and Tyler have funded their business
  • Our favorite resources for researching funding options

FULL TRANSCRIPT

Tyler: Welcome to products we’re talking about today. We’re talking about how to get money for that financing, right? Or how are we going to build that product based businesses. We’re going to give you guys 10 different ways to finance your business, most of which we’ve done. We’ve done some, we’re going to get into some stuff today about kind of some personal things we’ve had to deal with financing, whether it be in the startup phases or maybe in the cash flow down the road phase. Um, we’re going to talk about some stuff today.

RT: Yeah, we did a whole bunch of research, found a massive list of resources of all kinds of different ways to finance your business, finance, your prototypes, finance, you know, your first level of product. And, you know, first thing I think we need to say is that we are not financial professionals. We’re entrepreneurs just like you and not everything we’ve done has worked. And so we’ll share some of that and hopefully you can avoid those. But, um, before you do any of this, consult the most financially educated person that you know, uh, hopefully that is like a CPA or someone and uh, just get a second opinion before you just roll into this.

Tyler: And this’ll be a unique perspective. Cause I think a lot of times when you’re hearing this stuff, it’s coming from a financial expert, maybe an entrepreneur who’s super successful. It doesn’t have to worry about a lot of these things anymore. They’re there, you know, they’re focused on bigger problems, but like, you’re going to see it from our perspective. I think it’s going to be really unique. So let’s dig into it. Let’s do it.

RT: So number one is crowd funding. And I can give you a very relevant example. So we started Vortic Watch company on Kickstarter in November of 2014. We didn’t have any money. We didn’t have a way to show our friends and family that this crazy watch idea. We had my work and at the time Kickstarter was really popular, still is today. And so we said alright let’s put some prototypes together, make a video and try to sell some watches online. And we set a goal of $10,000 because we thought that was a lot of money and we raised $40,000 in a 30 days. And we basically used Kickstarter as the example to potential investors to say people actually want this product and they will pay for it before it even exists. And that’s our proof of of market. Really cool. Cause I’ve never done crown flooding. So this is something that on this list is probably one of the few that I’ve not done.

Tyler: So you know, what was the one thing that you really surprised about or like maybe some advice you can give somebody who’s thinking about crowd funding?

RT: I think the biggest thing with crowd funding, whether it’s, you know, Kickstarter, Indiegogo, go fund me, there’s many things. There’s now these crowdfunded equity, which is really cool. I didn’t know anything about, but interesting. All of those are just websites. So you’re building a website where you put a video and you put your products and you put your prototypes and you know, they say if you build it, they will come. That is not how it works. Just like a website. You have to build something and then you have to be the one that brings the people there to invest in you and fund your product. So don’t forget to market it. Don’t forget to tell everyone you’ve ever met in your entire life that you have a Kickstarter live and they should go fund it.

Tyler: So who’s this perfect for? Like what’s the, what’s the type of business or person this is going to be good for?

RT: I would say especially in a product based business, you know, just like where I was, I was right out of college, um, my business partner, Tyler and I neither had any money. You know, we, we asked our friends and family for money and they basically said like, okay, prove it. Um, if you have a really good idea and you just need to prove yourself, um, put it on Kickstarter and set the goal low enough that you know, if, if you’re successful you can make a few of them and then we use it as a stepping stone.

Tyler: Cool. Okay. So number two, so credit cards, I mean, this is uh, this is an easy one, right? So most people have credit cards and most people can just start charging stuff on that credit card and they’re justifying it one way or the other. But I will tell you this is kind of a slippery slope because the way you approach a personal business, our personal credit card versus a business credit card is distinctly different. You know, so just to talk through some methodology here at a personal credit card, you’re like, okay, I can, I should, I should not buy that. Right? I mean, it’s pretty straight forward. You know, some people still buy stuff they shouldn’t, but then you’ve got the business credit card where you’re trying to justify a purchase based on return on investment. So it’s very easy to say, I’ll ask you to cost me $1,000. I’ll throw it on this credit card. It’s a tax write off. Plus I know I’m gonna earn three, four, five times. My business has to have it. And it’s easy to get that slippery soap. So be very cautious of this when you start a business with a credit card, what that looks like longterm.

RT: And you gotta be really careful with credit cards as well because applying for credit cards hurts your credit having too much. They call it utilization. So if you have $10,000 in credit and you use 9,500 of it all the time, and you leave that balance on your account for months and months, that also hurts your credit. Um, there are ways you can use credit cards to help your credit and we’ll put some of that information in the resources, but just be really careful how often you apply, how many credit cards you have, how much of them you use. Um, because if you hurt your personal credit, which happens if you have a business credit card, it’s attached to your personal credit score. If you harm your personal credit using credit cards, then all this other stuff we’re about to tell you about bank loans and all these other fun things for when you’re really big and you need, you know, $1 million, no one’s going to take you seriously if you have a 400 credit score.

Tyler: Yeah. As a slippery slope, right? Because once you’ve reached that, that you deserve nation, you can’t get a credit card, they increase, you can’t do anything. It’s, you’re just kind of stuck. You’ve got to pay it down. But you know, that’s definitely a problem down the road when, let’s say you start with a credit card to fund the first five, 10, 15 $20,000 of your business and then you go to get that $250,000 like legitimate loans, maybe, you know, really buy inventory and you don’t, can’t get it. You’re done.

RT: One couple of benefits of credit cards though. First points. So we use, or we’re chase customers, so we use the Marriott and the United credit cards through chase. Um, you get a ton of great benefits from those cards. I get upgraded on a lot of United flights now, which is great. You get upgraded at Marriott, they treat you like a king. A lot of cool stuff that can come from that if you use it for the right stuff, if you use it wisely, if you’re paying it off every month, those are all good things. Again, just be careful and tried to do it the right way.

Tyler: Absolutely. Okay, so number three, friends, family, and you have a unique, uh, title for this as well. Yeah. Everybody. Yeah.

RT: The, in, like the startup community calls the first round of equity, financing, friends, family and fools. And that’s because you are brand new. No one’s invested in you. And when we’re talking equity financing, you’re selling a piece of your company for a chunk of money. Now, one thing with the friends and family and partners, it doesn’t have to be equity. So you can go to your parents or your best friend or someone and say, Hey, I’ve got this great product idea. I need help and I need like $10,000. Can I get a loan? And maybe they’ll give you a loan with like 10% interest and give you two years to pay it back. Um, and, and just Kinda hook you up with that. Um, they don’t have to get part of your company. You can also do alone.

Tyler: And this is one of the most flexible ways to finance a business because you can structure this in so many different ways, right? So, um, me personally, if I’m looking at this, I’m looking at strategic partnership, you know, so I’m looking at somebody who maybe doesn’t have the skillset I have. Maybe they have a better skillset in a different area, then I can bring on board, maybe they, they’re a finance guy, maybe they’re a marketing genius, maybe they’re an influencer. This is a really, is I’m passionate about this because this is a great way to find some business. Go Out, find an influencer in your niche and then partner with them. Say, Hey, put up 50,000 or 20,000, I’ll give you 10, 20% of the company and you’ve got an automatically, you’ve gotta build a marketing channel, plus they probably know a ton of other influencers. So that’s huge on that angle. You know, you can structure this any way you want to.

RT: Also manufacturers. So if you’re making a physical product, can, somebody has to like make part of it? Uh, one example when we were making watches, you know, the, the only person I found in the United States that could make the screws, um, was here in Colorado. But you know, had a minimum order of tens of thousands of dollars. And I went to him and I asked, you know, is there a way we can work together? And it just so happens his great grandfather was a watchmaker and we had this personal connection is really cool. And basically, um, he financed my first round of inventory cause I said, you know, I want to buy a thousand screws but I can only afford a hundred at first. And so he made a thousand and then sold them to me a hundred at a time, which is basically financing my inventory. So, you know, getting creative there. But bottom line is at this level, they’re investing in you. Whether it’s friends, family, partners, manufacturers, you ha, they, they think you have a good idea. They think this product might, might take off, but it’s your credibility that they’re basing the decision on. Um, so make sure you come with the viable credibility that you need to have that conversation.

Tyler: All right, number four is bank loans. Now this one’s everybody’s familiar with bank loans. Everybody’s probably had a bank loan in their life. Um, there are a lot of different ways this can be structured as well, but they’re going to be more structured in how they approach it. So in my opinion, you know, if you have a relationship with a bank, that’s the best route to go. Go talk to the person you have a connection with, you know, see if they’ll keep that bank meet or that loan may be inside that bank. Maybe they’ll finance it themselves. If not, what they’ll do, they’ll go out to the SBA. Okay. So the SBA, they’ve got four different types of loans. It’s going to be a really structured, a little more time consuming. It can take up to eight, 10, maybe even 12 months to get financing done through SBA. But it’s a very viable option. Yep.

RT: Yeah. The small business association, basically it’s a government backed agency that helps the banks take more risk. Um, and so, you know, you mentioned relationships, but that’s everything in banking, you know, walk into the place where you have your checking account and start there and then ask for references, ask for, you know, other people that, that have a good relationship with their bank. And then start with those. I like smaller banks personally. Um, they can just, they can do a lot of things that the big banks can’t. Um, and then a lot of the local banks, you know, around where you are, they’re willing to spend more time with you. They’re gonna come and you know, want to tour your facility and see how it’s made. And you know, they’re going to go to bat for you when they have to explain this alone that they want to do for you, to the SBA, to their management team, to the, you know, the underwriters that are looking at the numbers. Um, start with a good relationship with the bank and then send them all of your numbers and go from there.

Tyler: If you don’t have a relationship with a bank, the SBA actually list or top banks every quarter. So you can go on the SBA website, why she linked this? I’m down below, but you can go on and take a look at the top hundred banks so far this quarter, next quarter, so on and so forth. They have done the most SBA loans. So maybe it’s just simply, hey re find somebody that’s maybe in your state, in your region, calling them, making that connection and working through it.

RT: Yup. And you know, shameless plug, we have a business plan course. Check it out because every bank that you walk into, first thing they’re gonna ask is for your business plan. They’re going to ask for your financials, they’re going to ask for your tax returns. They’re gonna ask for this huge list of things that can overwhelming. It’s not really that difficult, it’s just putting your business and everything that’s in your head on paper so that you can give it to the bank in a way that they can really understand financially and take you really seriously.

Tyler: If you already have relationship with a bank and maybe you already have, you know, a business that’s up and going, pull out a line of credit. So you know, a lot of banks will do a line of credit, maybe ten thousand twenty thousand twenty five whatever they go up to a hundred thousand or 200,000 but you know, maybe they can just do a line of credit for you. And that’s a great way for expansion by inventory, so on and so forth.

RT: Yeah, you’re right. It doesn’t have to be a longterm loan. It could just be a line of credit. All right, check number five. Equity Financing. Yeah. So once you’ve kind of tapped out friends and family or you know, you don’t happen to know anyone that has a lot of money sitting around that might want to invest in you. The next level of equity financing would be angel investors. And this is like, it’s kind of like shark tank. You’re pitching your idea and product to one person or a group of people that have money, have experience usually and can help you with all of it. There are individual angels which can invest, you know, 10,000, $100,000 in your business and you’re just working with one individual person who invest and buys a portion of your company for a certain valuation. Again, you need the business plan, you need your pitch deck, you need all of that ready to go to pitch to them. Um, but they are investing in you and your business and buying part of it. Next step is the groups of angels or Angel Groups. Um, this is literally the same thing, but those angel investors get together in the same room once a month, once a quarter, et cetera. And they let entrepreneurs come in and pitch to them. And then instead of just investing one at a time, one person into one company, they’ll create this consortium of people that will invest in you as a group.

Tyler: Now remember in this scenario, like you want to treat this like any other part of these other financing options, you want to make sure you’re taking smart money. Okay? So there’s difference here. Like you just don’t want to take somebody’s money that maybe can’t provide any value to you, so make sure the angel group, the angel, whoever you’re getting involved with is going to provide value to you and that may be like an expertise in manufacturing or marketing or maybe they’ve done, maybe they’re in a specific niche or industry that you’re in, like those are the people you want to partner with because you need to use these people as resources. These are true partners,

RT: especially when you get to the next level, which is vcs or venture firms. When somebody is investing, that’s usually like $1 million or more into your company. Hopefully they bring more to the table than just money. Now on the flip side of that, there are helpful investors. There are things called silent partners where they give you money and then you never hear from them again. That could be just as helpful. It depends on what you’re looking for, but then there’s the not so silent partners that might end up being a bad person to work with. So don’t just take someone’s money, they’re willing to give it to you and buy a part of your company, do your research on them and set expectations on like how often they’re going to get information from you about how well you’re doing. You know, if, if they invest a lot of money in you and own a sizable portion of your business and then they call you once a week and say, hey, you know, how’s it go? What’s your financial projections like? You know, that could end up being a really bad thing and they might detract from your business more than the money they put in. So just be careful and, um, again, ask for advice and uh, and try to get a good relationship.

Tyler: Yeah. Do your due diligence with those people to like understand how the businesses they’ve invested in, how they’ve done, you know, like how many businesses have got an exit or like, or maybe what’s the percentage of the success rate or like how they, how do they view success? You know, like a lot of angel funds, a lot of people view success as like they’ve got three that maybe fail and that’s not good, but they have their percentages of things that they want to see out of people. So you know, ask them about those numbers and make sure they’ve had some successful wins for sure.

Tyler: So next up is grant. Yeah, grants. So grants are, you know, they sound great, right? Pretty much you’re going to get free money. So it’s kind of, this is one of those things where you jump into it and you start doing research and you spend a lot of time and energy on grants and likely you’re probably never going to get one because they’re pretty tough to get. So be cautious of, you know, where you’re spending your time in this process because some of these financing options, they take a lot of time in grants. It’d be at the top of that list of things that could take some time. So find a good resource. A Fundera, they’ve got a great are blog posts for the top hundred grants right now. And they keep it up to date cause that’s important cause a lot of grants will expire. They’ll go away, you know, whatever. And they will, yeah, you’ll, you’ll sort of digging around and you’ll start reading about it and you’ve wasted, you know, maybe an hour or two and it’s expired. So Fundera they do a great job. They’ve got a ton of a other resources on there as well. But I would check out that blog post

RT: and in my experience, a lot of the grants are niche. So, um, you know, an advanced industry, medical devices, um, you know, things that are improving the state or the country or the world with this product. You know, if, if your product is in a niche like that where it might change someone’s life, um, you know, that is something that there might be a grant out there for, for you to apply for. Um, an example for me, we would take, we actually got an advanced industries tax credit grant, which meant that anyone that invested in my company got to write it off on their taxes through the state of Colorado. Um, because we were making things that were, uh, very advanced technology, three d printing titanium, all that stuff. It didn’t matter that it was watches, it was that we were a manufacturing company and Colorado wanted more manufacturing companies. So that’s obviously a very specific niche. Um, but check that out and um, it’s worth a look, especially of that top 100.

Tyler: That’s free money, right? It is. Give it a look. Absolutely. Okay, so number seven, a short term loans.

RT: Yeah. So this, you know, again, we feel like we need to do a disclaimer on every single one. Take it slow with short term loans. There’s a couple of big ones. One is on deck, which we really like. We love on deck. I’ve, my face is on, on deck. [inaudible] board was one of their like, you know, partners of, of the month a few months ago. And, uh, they came in and featured our company, which is pretty cool. Um, we’ve also looked at at paypal loan builder, which is formerly swift financial. Um, there are pros and cons to all of this, but especially short term loans, you gotta be careful. Now these people basically like for on-deck or, or paypal, they’re going to come in and they’re going to give you, let’s say $50,000 and you have six months to pay it back and they’re just going to tack on a simple interest rates. So they’re going to say, all right, you, you get 50 grand and we’re going to charge you $5,000 fee to give you that 50,000. Um, and, and you have to pay back all 55,000 in six months. And that’s just one example. One number they can loan hundreds and hundreds of thousands. They can give you just 10,000, I’m sure. But, um, you have to pay it back quickly. That is the bottom line. And that’s where you need to be careful. So if you don’t have a big sales influx coming in really soon, if you’re not 100% sure that you’re going to get that 50 grand back in sales or investment or you know, the big bank loan is coming really soon. If you’re not positive that you can pay that back within that short term, then you shouldn’t take it because this is really risky.

Tyler: Absolutely. So, um, I, yeah, I guess I kind of cover a certain loans. It’s a really straight forward concept. I’m just, you know, do, do, do those and it’s run through and like I said, we like on deck. Um, but that’s Kinda it for short term loans, right? Yeah, absolutely.

Tyler: Okay, so, uh, the next one is going to be side hustle. You know, this is something that’s pretty basic, more subjective, but like sometimes you just gotta do a side hustle. Yeah.

RT: And don’t forget about the side hustle. I mean, it could be the thing that, that makes it happen for you. I mean, for, for me or tick watch company was my side hustle for two years. And the only reason it worked was because I had a business partner and he was full time at Vortic. Well I was full time at my other job. Um, but because I had that income, I could, you know, build all of this financially for us. And then when I left my job, um, I was able to, you know, progress the business enough right away that I could start paying myself again. But, um, it’s, it’s getting creative.

Tyler: Yeah. So side hustle, I mean, that’s going to be good for like the smaller businesses that maybe only need five, 10,000 to get started. You know, if you’re above that number, it’s gonna be really difficult to work. Maybe a full time job, a side hustle or whatever, however that’s gonna work for you and have time to build a business that’s viable. So it’s gonna take too long. So if you get above those, you know, five, seven, $10,000 where you can’t save it up in six months, maybe from a side hustle, you got to look outside and find some outside money. Cause it’s just the opportunity cost is way too great.

RT: Yeah. And when you look at opportunity, you always do better when you focus on one thing. So if you don’t have to have this side hustle, then don’t do it. If you can put all of your energy into one thing, um, you’re going to do a lot better. So try that first and if you need it, then get after the side hustle.

Tyler:

RT: All right, number nine, pitch competitions. Yeah. So, um, personal experience here, I’ve won two pitch competitions in my life, uh, both for $10,000. And it’s free money. It’s just like a grant. So you’re already pitching investors, you already have your business plan, you already have your pitch deck. Um, and at this point you just get in front of a room and you’re basically practicing for all of that stuff and you’re going through your slides and you’re saying, this is why my business is better than anybody else’s business. Doesn’t have to be bigger or a better investment or anything like that. It’s just they’re judging your pitch, you know, how articulately you, you know, showcase what your business does. And, um, if you win, you get the cash price. So, um, it’s literally free money. The other thing I would say is that not only is it great practice, but you never know who’s in the room. So for me, the second pitch competition that I won last year, um, there were investors of mine, like current investors and potential investors in the room watching me pitch. And after the pitch I received I think $10,000 in prize money but $50,000 in investment. Cause they, they were like, wow, you know, this kid looks like he knows what he’s talking about.

Tyler: Yeah. It is great because it’s, it’s validation. Like you said, it’s can be validation. It’s also gonna be, it’s practice, you know, it makes you really think about your business and so down the road when your business maybe needs money from VC, your angel, like you can get up there and do a pitch, you know? Um, I love it. I love it. It’s great. It’s something a lot of people don’t talk about, but at least two, a couple in the early stages of your business. So you get that practice.

RT: Yup. And get those questions. You know, if you’re at the end of your pitch and people ask you some really hard questions that you don’t know how to answer, that’s just a, uh, you know, call to action for you to go and put those, uh, answers inside your business plan or your pitch somewhere. Cause now you know that, uh, the room was left with those questions.

Tyler: Number 10, getting creative. So, you know, we had the disclaimer early on that we’re not professionals, but here are the couple of different ways that you can finance a business that we don’t really recommend but maybe viable and certain situations very low on the list. So a couple of there are that we have down or cash out 401ks which we absolutely do not recommend, but in certain scenarios may work well for you. Um, look at the equity in your house or your assets in general. Look your equity. Can you pull out a refi mortgage? Can you our cash out mortgage? Can you look at a home equity line of credit selling your car? Maybe you’ve got equity in your car, you sell your car and you know, you, you lease a car or find a clunker or something like that. Um, life insurance, cashing out, life insurance. Um, these are all different ways. So look your assets around you and figure out the least expensive and maybe look and see if that’s a viable option, if it’s going to be enough money or if it’s even worth the effort.

RT: Yup. And just again, be really careful and only do this stuff if you know it’s going to work and you know that it’s like the last resort and, and the only way that you can solve the problem. I would give one relevant example. I used to have a two door car and I became a dad about two years ago and needed an SUV. I had, um, the car was an asset. I owned it. Um, and I was told that leasing a car might be a better, you know, business expense for me. And so I traded in my car, got cash out of that asset and then started paying a monthly lease for my new SUV. And, um, basically took that, you know, there’s probably only $3,000, but that $3,000 I could use to put in my bank so I didn’t have to pay myself from my startup for a couple of months. And that’s one of the reasons that, you know, we could make payroll and we could keep growing, um, was, was not having to worry about some of those things. So, you know, the ends justify the means, but just make sure it’s actually justified before you do it. I didn’t just have that, uh, idea and did it. I talked to my CPA and tried to figure out like, is there going to be a tax problem with this and how does that work? You know, just be really careful with that and make sure that you don’t hurt yourself in the long term by cashing out one of those [inaudible].

Tyler: Alright, that’s 10 creative ways or 10 ways in general to finance your business. So as we talked about the beginning, we’re not professionals and we gave some real world examples here, but look through this list. Figure out what’s gonna be best for you and your family and your business, and then go ahead and execute on that one. I recommend doing one at a time. Yeah. You know, a lot of people will try all these different financing options. I think it’s probably distracting. So, you know, pick one and go all in on it.

RT: Absolutely. And so after that, let us know how it goes. Let us know how else we can help. You can find us@productsworthtalkingabout.com as well as Instagram, Facebook, et cetera. Check us out, let us know what you think and uh, we’ll talk to you soon.

FULL TRANSCRIPT

Tyler: Welcome to products we’re talking about today. We’re talking about how to get money for that financing, right? Or how are we going to build that product based businesses. We’re going to give you guys 10 different ways to finance your business, most of which we’ve done. We’ve done some, we’re going to get into some stuff today about kind of some personal things we’ve had to deal with financing, whether it be in the startup phases or maybe in the cash flow down the road phase. Um, we’re going to talk about some stuff today.

RT: Yeah, we did a whole bunch of research, found a massive list of resources of all kinds of different ways to finance your business, finance, your prototypes, finance, you know, your first level of product. And, you know, first thing I think we need to say is that we are not financial professionals. We’re entrepreneurs just like you and not everything we’ve done has worked. And so we’ll share some of that and hopefully you can avoid those. But, um, before you do any of this, consult the most financially educated person that you know, uh, hopefully that is like a CPA or someone and uh, just get a second opinion before you just roll into this.

Tyler: And this’ll be a unique perspective. Cause I think a lot of times when you’re hearing this stuff, it’s coming from a financial expert, maybe an entrepreneur who’s super successful. It doesn’t have to worry about a lot of these things anymore. They’re there, you know, they’re focused on bigger problems, but like, you’re going to see it from our perspective. I think it’s going to be really unique. So let’s dig into it. Let’s do it.

RT: So number one is crowd funding. And I can give you a very relevant example. So we started Vortic Watch company on Kickstarter in November of 2014. We didn’t have any money. We didn’t have a way to show our friends and family that this crazy watch idea. We had my work and at the time Kickstarter was really popular, still is today. And so we said alright let’s put some prototypes together, make a video and try to sell some watches online. And we set a goal of $10,000 because we thought that was a lot of money and we raised $40,000 in a 30 days. And we basically used Kickstarter as the example to potential investors to say people actually want this product and they will pay for it before it even exists. And that’s our proof of of market. Really cool. Cause I’ve never done crown flooding. So this is something that on this list is probably one of the few that I’ve not done.

Tyler: So you know, what was the one thing that you really surprised about or like maybe some advice you can give somebody who’s thinking about crowd funding?

RT: I think the biggest thing with crowd funding, whether it’s, you know, Kickstarter, Indiegogo, go fund me, there’s many things. There’s now these crowdfunded equity, which is really cool. I didn’t know anything about, but interesting. All of those are just websites. So you’re building a website where you put a video and you put your products and you put your prototypes and you know, they say if you build it, they will come. That is not how it works. Just like a website. You have to build something and then you have to be the one that brings the people there to invest in you and fund your product. So don’t forget to market it. Don’t forget to tell everyone you’ve ever met in your entire life that you have a Kickstarter live and they should go fund it.

Tyler: So who’s this perfect for? Like what’s the, what’s the type of business or person this is going to be good for?

RT: I would say especially in a product based business, you know, just like where I was, I was right out of college, um, my business partner, Tyler and I neither had any money. You know, we, we asked our friends and family for money and they basically said like, okay, prove it. Um, if you have a really good idea and you just need to prove yourself, um, put it on Kickstarter and set the goal low enough that you know, if, if you’re successful you can make a few of them and then we use it as a stepping stone.

Tyler: Cool. Okay. So number two, so credit cards, I mean, this is uh, this is an easy one, right? So most people have credit cards and most people can just start charging stuff on that credit card and they’re justifying it one way or the other. But I will tell you this is kind of a slippery slope because the way you approach a personal business, our personal credit card versus a business credit card is distinctly different. You know, so just to talk through some methodology here at a personal credit card, you’re like, okay, I can, I should, I should not buy that. Right? I mean, it’s pretty straight forward. You know, some people still buy stuff they shouldn’t, but then you’ve got the business credit card where you’re trying to justify a purchase based on return on investment. So it’s very easy to say, I’ll ask you to cost me $1,000. I’ll throw it on this credit card. It’s a tax write off. Plus I know I’m gonna earn three, four, five times. My business has to have it. And it’s easy to get that slippery soap. So be very cautious of this when you start a business with a credit card, what that looks like longterm.

RT: And you gotta be really careful with credit cards as well because applying for credit cards hurts your credit having too much. They call it utilization. So if you have $10,000 in credit and you use 9,500 of it all the time, and you leave that balance on your account for months and months, that also hurts your credit. Um, there are ways you can use credit cards to help your credit and we’ll put some of that information in the resources, but just be really careful how often you apply, how many credit cards you have, how much of them you use. Um, because if you hurt your personal credit, which happens if you have a business credit card, it’s attached to your personal credit score. If you harm your personal credit using credit cards, then all this other stuff we’re about to tell you about bank loans and all these other fun things for when you’re really big and you need, you know, $1 million, no one’s going to take you seriously if you have a 400 credit score.

Tyler: Yeah. As a slippery slope, right? Because once you’ve reached that, that you deserve nation, you can’t get a credit card, they increase, you can’t do anything. It’s, you’re just kind of stuck. You’ve got to pay it down. But you know, that’s definitely a problem down the road when, let’s say you start with a credit card to fund the first five, 10, 15 $20,000 of your business and then you go to get that $250,000 like legitimate loans, maybe, you know, really buy inventory and you don’t, can’t get it. You’re done.

RT: One couple of benefits of credit cards though. First points. So we use, or we’re chase customers, so we use the Marriott and the United credit cards through chase. Um, you get a ton of great benefits from those cards. I get upgraded on a lot of United flights now, which is great. You get upgraded at Marriott, they treat you like a king. A lot of cool stuff that can come from that if you use it for the right stuff, if you use it wisely, if you’re paying it off every month, those are all good things. Again, just be careful and tried to do it the right way.

Tyler: Absolutely. Okay, so number three, friends, family, and you have a unique, uh, title for this as well. Yeah. Everybody. Yeah.

RT: The, in, like the startup community calls the first round of equity, financing, friends, family and fools. And that’s because you are brand new. No one’s invested in you. And when we’re talking equity financing, you’re selling a piece of your company for a chunk of money. Now, one thing with the friends and family and partners, it doesn’t have to be equity. So you can go to your parents or your best friend or someone and say, Hey, I’ve got this great product idea. I need help and I need like $10,000. Can I get a loan? And maybe they’ll give you a loan with like 10% interest and give you two years to pay it back. Um, and, and just Kinda hook you up with that. Um, they don’t have to get part of your company. You can also do alone.

Tyler: And this is one of the most flexible ways to finance a business because you can structure this in so many different ways, right? So, um, me personally, if I’m looking at this, I’m looking at strategic partnership, you know, so I’m looking at somebody who maybe doesn’t have the skillset I have. Maybe they have a better skillset in a different area, then I can bring on board, maybe they, they’re a finance guy, maybe they’re a marketing genius, maybe they’re an influencer. This is a really, is I’m passionate about this because this is a great way to find some business. Go Out, find an influencer in your niche and then partner with them. Say, Hey, put up 50,000 or 20,000, I’ll give you 10, 20% of the company and you’ve got an automatically, you’ve gotta build a marketing channel, plus they probably know a ton of other influencers. So that’s huge on that angle. You know, you can structure this any way you want to.

RT: Also manufacturers. So if you’re making a physical product, can, somebody has to like make part of it? Uh, one example when we were making watches, you know, the, the only person I found in the United States that could make the screws, um, was here in Colorado. But you know, had a minimum order of tens of thousands of dollars. And I went to him and I asked, you know, is there a way we can work together? And it just so happens his great grandfather was a watchmaker and we had this personal connection is really cool. And basically, um, he financed my first round of inventory cause I said, you know, I want to buy a thousand screws but I can only afford a hundred at first. And so he made a thousand and then sold them to me a hundred at a time, which is basically financing my inventory. So, you know, getting creative there. But bottom line is at this level, they’re investing in you. Whether it’s friends, family, partners, manufacturers, you ha, they, they think you have a good idea. They think this product might, might take off, but it’s your credibility that they’re basing the decision on. Um, so make sure you come with the viable credibility that you need to have that conversation.

Tyler: All right, number four is bank loans. Now this one’s everybody’s familiar with bank loans. Everybody’s probably had a bank loan in their life. Um, there are a lot of different ways this can be structured as well, but they’re going to be more structured in how they approach it. So in my opinion, you know, if you have a relationship with a bank, that’s the best route to go. Go talk to the person you have a connection with, you know, see if they’ll keep that bank meet or that loan may be inside that bank. Maybe they’ll finance it themselves. If not, what they’ll do, they’ll go out to the SBA. Okay. So the SBA, they’ve got four different types of loans. It’s going to be a really structured, a little more time consuming. It can take up to eight, 10, maybe even 12 months to get financing done through SBA. But it’s a very viable option. Yep.

RT: Yeah. The small business association, basically it’s a government backed agency that helps the banks take more risk. Um, and so, you know, you mentioned relationships, but that’s everything in banking, you know, walk into the place where you have your checking account and start there and then ask for references, ask for, you know, other people that, that have a good relationship with their bank. And then start with those. I like smaller banks personally. Um, they can just, they can do a lot of things that the big banks can’t. Um, and then a lot of the local banks, you know, around where you are, they’re willing to spend more time with you. They’re gonna come and you know, want to tour your facility and see how it’s made. And you know, they’re going to go to bat for you when they have to explain this alone that they want to do for you, to the SBA, to their management team, to the, you know, the underwriters that are looking at the numbers. Um, start with a good relationship with the bank and then send them all of your numbers and go from there.

Tyler: If you don’t have a relationship with a bank, the SBA actually list or top banks every quarter. So you can go on the SBA website, why she linked this? I’m down below, but you can go on and take a look at the top hundred banks so far this quarter, next quarter, so on and so forth. They have done the most SBA loans. So maybe it’s just simply, hey re find somebody that’s maybe in your state, in your region, calling them, making that connection and working through it.

RT: Yup. And you know, shameless plug, we have a business plan course. Check it out because every bank that you walk into, first thing they’re gonna ask is for your business plan. They’re going to ask for your financials, they’re going to ask for your tax returns. They’re gonna ask for this huge list of things that can overwhelming. It’s not really that difficult, it’s just putting your business and everything that’s in your head on paper so that you can give it to the bank in a way that they can really understand financially and take you really seriously.

Tyler: If you already have relationship with a bank and maybe you already have, you know, a business that’s up and going, pull out a line of credit. So you know, a lot of banks will do a line of credit, maybe ten thousand twenty thousand twenty five whatever they go up to a hundred thousand or 200,000 but you know, maybe they can just do a line of credit for you. And that’s a great way for expansion by inventory, so on and so forth.

RT: Yeah, you’re right. It doesn’t have to be a longterm loan. It could just be a line of credit. All right, check number five. Equity Financing. Yeah. So once you’ve kind of tapped out friends and family or you know, you don’t happen to know anyone that has a lot of money sitting around that might want to invest in you. The next level of equity financing would be angel investors. And this is like, it’s kind of like shark tank. You’re pitching your idea and product to one person or a group of people that have money, have experience usually and can help you with all of it. There are individual angels which can invest, you know, 10,000, $100,000 in your business and you’re just working with one individual person who invest and buys a portion of your company for a certain valuation. Again, you need the business plan, you need your pitch deck, you need all of that ready to go to pitch to them. Um, but they are investing in you and your business and buying part of it. Next step is the groups of angels or Angel Groups. Um, this is literally the same thing, but those angel investors get together in the same room once a month, once a quarter, et cetera. And they let entrepreneurs come in and pitch to them. And then instead of just investing one at a time, one person into one company, they’ll create this consortium of people that will invest in you as a group.

Tyler: Now remember in this scenario, like you want to treat this like any other part of these other financing options, you want to make sure you’re taking smart money. Okay? So there’s difference here. Like you just don’t want to take somebody’s money that maybe can’t provide any value to you, so make sure the angel group, the angel, whoever you’re getting involved with is going to provide value to you and that may be like an expertise in manufacturing or marketing or maybe they’ve done, maybe they’re in a specific niche or industry that you’re in, like those are the people you want to partner with because you need to use these people as resources. These are true partners,

RT: especially when you get to the next level, which is vcs or venture firms. When somebody is investing, that’s usually like $1 million or more into your company. Hopefully they bring more to the table than just money. Now on the flip side of that, there are helpful investors. There are things called silent partners where they give you money and then you never hear from them again. That could be just as helpful. It depends on what you’re looking for, but then there’s the not so silent partners that might end up being a bad person to work with. So don’t just take someone’s money, they’re willing to give it to you and buy a part of your company, do your research on them and set expectations on like how often they’re going to get information from you about how well you’re doing. You know, if, if they invest a lot of money in you and own a sizable portion of your business and then they call you once a week and say, hey, you know, how’s it go? What’s your financial projections like? You know, that could end up being a really bad thing and they might detract from your business more than the money they put in. So just be careful and, um, again, ask for advice and uh, and try to get a good relationship.

Tyler: Yeah. Do your due diligence with those people to like understand how the businesses they’ve invested in, how they’ve done, you know, like how many businesses have got an exit or like, or maybe what’s the percentage of the success rate or like how they, how do they view success? You know, like a lot of angel funds, a lot of people view success as like they’ve got three that maybe fail and that’s not good, but they have their percentages of things that they want to see out of people. So you know, ask them about those numbers and make sure they’ve had some successful wins for sure.

Tyler: So next up is grant. Yeah, grants. So grants are, you know, they sound great, right? Pretty much you’re going to get free money. So it’s kind of, this is one of those things where you jump into it and you start doing research and you spend a lot of time and energy on grants and likely you’re probably never going to get one because they’re pretty tough to get. So be cautious of, you know, where you’re spending your time in this process because some of these financing options, they take a lot of time in grants. It’d be at the top of that list of things that could take some time. So find a good resource. A Fundera, they’ve got a great are blog posts for the top hundred grants right now. And they keep it up to date cause that’s important cause a lot of grants will expire. They’ll go away, you know, whatever. And they will, yeah, you’ll, you’ll sort of digging around and you’ll start reading about it and you’ve wasted, you know, maybe an hour or two and it’s expired. So Fundera they do a great job. They’ve got a ton of a other resources on there as well. But I would check out that blog post

RT: and in my experience, a lot of the grants are niche. So, um, you know, an advanced industry, medical devices, um, you know, things that are improving the state or the country or the world with this product. You know, if, if your product is in a niche like that where it might change someone’s life, um, you know, that is something that there might be a grant out there for, for you to apply for. Um, an example for me, we would take, we actually got an advanced industries tax credit grant, which meant that anyone that invested in my company got to write it off on their taxes through the state of Colorado. Um, because we were making things that were, uh, very advanced technology, three d printing titanium, all that stuff. It didn’t matter that it was watches, it was that we were a manufacturing company and Colorado wanted more manufacturing companies. So that’s obviously a very specific niche. Um, but check that out and um, it’s worth a look, especially of that top 100.

Tyler: That’s free money, right? It is. Give it a look. Absolutely. Okay, so number seven, a short term loans.

RT: Yeah. So this, you know, again, we feel like we need to do a disclaimer on every single one. Take it slow with short term loans. There’s a couple of big ones. One is on deck, which we really like. We love on deck. I’ve, my face is on, on deck. [inaudible] board was one of their like, you know, partners of, of the month a few months ago. And, uh, they came in and featured our company, which is pretty cool. Um, we’ve also looked at at paypal loan builder, which is formerly swift financial. Um, there are pros and cons to all of this, but especially short term loans, you gotta be careful. Now these people basically like for on-deck or, or paypal, they’re going to come in and they’re going to give you, let’s say $50,000 and you have six months to pay it back and they’re just going to tack on a simple interest rates. So they’re going to say, all right, you, you get 50 grand and we’re going to charge you $5,000 fee to give you that 50,000. Um, and, and you have to pay back all 55,000 in six months. And that’s just one example. One number they can loan hundreds and hundreds of thousands. They can give you just 10,000, I’m sure. But, um, you have to pay it back quickly. That is the bottom line. And that’s where you need to be careful. So if you don’t have a big sales influx coming in really soon, if you’re not 100% sure that you’re going to get that 50 grand back in sales or investment or you know, the big bank loan is coming really soon. If you’re not positive that you can pay that back within that short term, then you shouldn’t take it because this is really risky.

Tyler: Absolutely. So, um, I, yeah, I guess I kind of cover a certain loans. It’s a really straight forward concept. I’m just, you know, do, do, do those and it’s run through and like I said, we like on deck. Um, but that’s Kinda it for short term loans, right? Yeah, absolutely.

Tyler: Okay, so, uh, the next one is going to be side hustle. You know, this is something that’s pretty basic, more subjective, but like sometimes you just gotta do a side hustle. Yeah.

RT: And don’t forget about the side hustle. I mean, it could be the thing that, that makes it happen for you. I mean, for, for me or tick watch company was my side hustle for two years. And the only reason it worked was because I had a business partner and he was full time at Vortic. Well I was full time at my other job. Um, but because I had that income, I could, you know, build all of this financially for us. And then when I left my job, um, I was able to, you know, progress the business enough right away that I could start paying myself again. But, um, it’s, it’s getting creative.

Tyler: Yeah. So side hustle, I mean, that’s going to be good for like the smaller businesses that maybe only need five, 10,000 to get started. You know, if you’re above that number, it’s gonna be really difficult to work. Maybe a full time job, a side hustle or whatever, however that’s gonna work for you and have time to build a business that’s viable. So it’s gonna take too long. So if you get above those, you know, five, seven, $10,000 where you can’t save it up in six months, maybe from a side hustle, you got to look outside and find some outside money. Cause it’s just the opportunity cost is way too great.

RT: Yeah. And when you look at opportunity, you always do better when you focus on one thing. So if you don’t have to have this side hustle, then don’t do it. If you can put all of your energy into one thing, um, you’re going to do a lot better. So try that first and if you need it, then get after the side hustle.

Tyler:

RT: All right, number nine, pitch competitions. Yeah. So, um, personal experience here, I’ve won two pitch competitions in my life, uh, both for $10,000. And it’s free money. It’s just like a grant. So you’re already pitching investors, you already have your business plan, you already have your pitch deck. Um, and at this point you just get in front of a room and you’re basically practicing for all of that stuff and you’re going through your slides and you’re saying, this is why my business is better than anybody else’s business. Doesn’t have to be bigger or a better investment or anything like that. It’s just they’re judging your pitch, you know, how articulately you, you know, showcase what your business does. And, um, if you win, you get the cash price. So, um, it’s literally free money. The other thing I would say is that not only is it great practice, but you never know who’s in the room. So for me, the second pitch competition that I won last year, um, there were investors of mine, like current investors and potential investors in the room watching me pitch. And after the pitch I received I think $10,000 in prize money but $50,000 in investment. Cause they, they were like, wow, you know, this kid looks like he knows what he’s talking about.

Tyler: Yeah. It is great because it’s, it’s validation. Like you said, it’s can be validation. It’s also gonna be, it’s practice, you know, it makes you really think about your business and so down the road when your business maybe needs money from VC, your angel, like you can get up there and do a pitch, you know? Um, I love it. I love it. It’s great. It’s something a lot of people don’t talk about, but at least two, a couple in the early stages of your business. So you get that practice.

RT: Yup. And get those questions. You know, if you’re at the end of your pitch and people ask you some really hard questions that you don’t know how to answer, that’s just a, uh, you know, call to action for you to go and put those, uh, answers inside your business plan or your pitch somewhere. Cause now you know that, uh, the room was left with those questions.

Tyler: Number 10, getting creative. So, you know, we had the disclaimer early on that we’re not professionals, but here are the couple of different ways that you can finance a business that we don’t really recommend but maybe viable and certain situations very low on the list. So a couple of there are that we have down or cash out 401ks which we absolutely do not recommend, but in certain scenarios may work well for you. Um, look at the equity in your house or your assets in general. Look your equity. Can you pull out a refi mortgage? Can you our cash out mortgage? Can you look at a home equity line of credit selling your car? Maybe you’ve got equity in your car, you sell your car and you know, you, you lease a car or find a clunker or something like that. Um, life insurance, cashing out, life insurance. Um, these are all different ways. So look your assets around you and figure out the least expensive and maybe look and see if that’s a viable option, if it’s going to be enough money or if it’s even worth the effort.

RT: Yup. And just again, be really careful and only do this stuff if you know it’s going to work and you know that it’s like the last resort and, and the only way that you can solve the problem. I would give one relevant example. I used to have a two door car and I became a dad about two years ago and needed an SUV. I had, um, the car was an asset. I owned it. Um, and I was told that leasing a car might be a better, you know, business expense for me. And so I traded in my car, got cash out of that asset and then started paying a monthly lease for my new SUV. And, um, basically took that, you know, there’s probably only $3,000, but that $3,000 I could use to put in my bank so I didn’t have to pay myself from my startup for a couple of months. And that’s one of the reasons that, you know, we could make payroll and we could keep growing, um, was, was not having to worry about some of those things. So, you know, the ends justify the means, but just make sure it’s actually justified before you do it. I didn’t just have that, uh, idea and did it. I talked to my CPA and tried to figure out like, is there going to be a tax problem with this and how does that work? You know, just be really careful with that and make sure that you don’t hurt yourself in the long term by cashing out one of those [inaudible].

Tyler: Alright, that’s 10 creative ways or 10 ways in general to finance your business. So as we talked about the beginning, we’re not professionals and we gave some real world examples here, but look through this list. Figure out what’s gonna be best for you and your family and your business, and then go ahead and execute on that one. I recommend doing one at a time. Yeah. You know, a lot of people will try all these different financing options. I think it’s probably distracting. So, you know, pick one and go all in on it.

RT: Absolutely. And so after that, let us know how it goes. Let us know how else we can help. You can find us@productsworthtalkingabout.com as well as Instagram, Facebook, et cetera. Check us out, let us know what you think and uh, we’ll talk to you soon.

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