How to Fund an Internet Business

Opening up a traditional business of any kind can be a very expensive process. The cost of purchasing or renting physical space and stocking that space is cost prohibitive to many people who would like to begin working for themselves. The good news is starting an Internet-based business is much less expensive than traditional brick-and-mortar business startups. While there are ways to spend hundreds of thousands of dollars to start and fund an Internet business, there are ways to fund the Internet business at a more manageable price.

Difficulty: Moderately Easy

Instructions

1. Discover how much of an investment you need by listing every expense you can think of for the business. Be sure to include merchant banking fees for credit card processing, web space (hosting fees or a web server) and website development.

2. Create a holding company (Limited Liability Corporation) that will have all of the funds necessary to start the Internet business. It is best to create this company in a state where the Revised Uniform Limited Partnership Act is in effect.

3. Create the Internet business with the holding company as the owner of the business. The Internet business is the operating business because it is the company actually interacting with customers to make a profit.

4. Contribute the startup funds needed for the Internet business to the holding company (the first company you establish) in exchange for an equity interest in the holding company. The initial investment can come from savings, a select group of investors or selling personal goods to raise funds.

5. Loan the needed funds to the operating company (Internet business) from the holding company using a contract. The Internet business should pay the loan back to the holding company at an interest rate stated in the loan and over a designated period of time. You can set the loan payments to start in the future.

6. Lease office space and other needed assets to the Internet business from the holding company.

7. Approach a lender to get additional funds for the Internet business with the Internet business (operating company) being the sole party responsible to repay the loan.

8. Reinvest profits made by the Internet business into expanding the business as needed.

Tips & Warnings

• The Revised Uniform Limited Partnership Act protects the assets of the holding company in case the owner has financial problems.
• The holding company holds the majority or all of the business assets needed by the operating company such as buildings and cash.
• A well-written business plan is a necessity to receive a loan.
• You must have paperwork showing each step used to fund the Internet business or you could negate the protection you establish.

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