What Is Seed Money?
- Potential entrepreneurs need to consider the market, their business operation and the future financial performance of their business when formulating an idea. All of the pieces fit together except for the financial resources to start the business. These entrepreneurs may lack the seed money, or funds to open the business. As the entrepreneurs continue to refine their business idea, they talk to others about the feasibility of their business and gather more data to use planning the business.
- These entrepreneurs need the financial resources to proceed with their dream business. The funds used to start up and launch the business come from seed money. Seed money provides the necessary funds to allow a potential entrepreneur to open her dream business. When the entrepreneur locates a source for seed money, the door of opportunity opens. The entrepreneur is free to move ahead with the next phase of the business. The financial backing of the seed money allows the entrepreneur to negotiate with property owners regarding lease agreements or with suppliers regarding quantity discounts.
- Seed money providers come in many forms. Some providers come from wealthy backgrounds with excess cash on hand. Banks provide seed money for entrepreneurs by offering loans to qualifying entrepreneurs. The entrepreneur must present a complete business plan for the bank to review when considering the loan application. Some organizations offer grants to promising entrepreneurs who need the funds and fit specific criteria determined by the mission of the organization. Grants require no payback from the entrepreneur.
- Several benefits exist for seed money providers. Banks who lend money to entrepreneurs increase their revenue through the receipt of interest payments. Investors receive the satisfaction of bringing an entrepreneur's dream alive while earning a potential return on the investment. Organizations who offer grants receive the acknowledgement offered by the entrepreneur as well as seeing their mission furthered.