In Business, what is Front Money?

Simply put, front money is the cash used to start a business. It often is referred to as start-up money. When an entrepreneur has an idea for a business he or she thinks will be successful, front money is needed to get it started. Many times, this means soliciting investors from many different sources who could one day receive a cut of the profits.

The term "front money" covers a wide variety of funding. There is no hard and fast rule about what constitutes this business start-up nest egg. Personal savings, outside investors' contributions and government money — or some combination of these — make up a business' front money.

Personal front money can come from anything that the individual owns. In most cases, this money comes from a bank account. Entrepreneurs also have been known to sell stocks and other investments in order to get a business running. Also, a businessmen might sell personal goods to make ends meet.

Seeking investors probably is the most common way to acquire front money. Projects as wide-ranging as new restaurants, Hollywood film productions and vacuum cleaner repair services have all enlisted the help of investors. Working up a business plan and approaching individuals with investment money is one way to get start-up cash. Venture capitalists are the most well-known investors, because their primary form of income comes from funding businesses for a cut of the profits.

One area that many new business owners overlook is the role that government plays in providing front money. Every government is different in its level and financial amount of funding, so it is always best to do research. In the United States, for example, there are a number of small business grants available that do not need to be repaid. There also are governmental small business loans that are easier to acquire but must be repaid, often with interest.

Banks are another traditional place to acquire front money. A cornerstone of many banks is providing loans to new business entrepreneurs. It often is helpful to shop around to various banks because they each offer a different interest rate and upfront fees to get the loan. By playing the field a little, a new business owner can save himself or herself a great deal of money.

No matter the business, most entrepreneurs need some start-up money. This front money helps get a business started and stay afloat until sales activity picks up. There is no single place to acquire this money, leaving options for help as varied as personal savings, banks, venture capitalists and more.