The Importance of Seed Money When Starting a Business

Mar 14, 2016 by

High Initial Expenses

Owning your own business is the American dream, but not everyone has the funds necessary to get one started. The beginning expenses can be quite costly. There are large overhead costs for products, legal and licensing fees, and maybe even employee salaries to pay.

Besides these initial costs, new business owners also have personal expenses that must be paid. It takes time to turn a profit, and some businesses take longer than others to do this. So, to help keep the business afloat, many turn to CAPCO programs to help get the extra funding that they need. In the business world, this is called “seed money”.

Be Cautious of Debt

Seed money is looked at as an investment towards a potentially profitable business where in the investor gets a percentage of the company’s equity in return for money that they give to the business. In other words, they become partial owners or shareholders. Without seed money, most beginning businesses fail. The overwhelming costs quickly drain personal bank accounts.

If a business owner tries to get a loan to help with the high start-up costs, it still has to be paid back. This adds to their debt. If a company’s debt to income ratio is too high, it is hard to get any more loans they might need because they do not look profitable to a bank. Too many loans make a company’s bottom line look bad. CAPCO programs are one way that businesses can get important seed money without accruing debt.

Programs like this are beneficial to businesses for more than just funding though. They have a vast amount of experience in helping businesses succeed, so they can offer invaluable advice and guidance.

How an Investor Can Help

Having an investor sometimes seems a little intimidating to business owners, but it is actually a much safer venue than some other much riskier fundraising methods. The investor actually creates something of a line of credit for the business. They can sell a percentage of their business to the investor in return for seed money. Later on, they can buy back some of the sold shares if they choose to.

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