How to Fund a Start-Up Oil and Gas Company

by David Ingram - Updated September 26, 2017
Oil drilling is the foundation of the automotive fuel industry.

Start-up companies can turn to a number of funding sources for the money they need to get their companies off the ground. Personal savings or loans from friends and family can be the most cost-efficient and hassle-free forms of financing, but some industries include such a high cost of entry that personal income sources are rarely adequate. Oil and gas companies are examples of industry that can have exceptionally high costs of entry, especially the oil and gas exploration segment. To start an oil and gas company, entrepreneurs will likely have to look to external funding sources, such as private investment and loan funding.

Consider seeking private investment from a venture capital firm. Private investment consists of cash infusions from individual or organizational investors. Investors do not require companies to pay back their invested capital the way lenders do. Instead, investors are more likely to require an ownership stake in the business, which they can sell as the business becomes more valuable. Private investment can be a solid option for oil and gas exploration companies, as the potential returns for investors can be many times their original investments. Companies like distributors and fueling stations may find it more difficult to secure private investment, but the option is still there.

Turn to business loans if venture capital is not a viable option. Loans are an option for virtually all businesses, depending on the owners' personal credit history and financial situation. The Small Business Administration insures specific small business loans to encourage banks and other lenders to take a chance on start-up companies. Ask a loan officer about SBA loan options to take advantage of this program. Loans can be a better option for oil and gas distributors and fueling stations than for exploration companies, as distributors and retailers can experience more predictable income patterns and growth in the early stages than exploration companies, who may not earn a dime for years.

Apply for industry-specific grants to take advantage of debt-free start-up capital. Grants can be an option for oil and gas exploration companies, since finding oil has geopolitical and economic implications for the nation. The federal government is likely to offer a number of grants to support natural resource exploration at any given time, depending on the current political and economic climate. Visit grants.gov to review government grant opportunities. Although specific grants are less likely to be offered to distributors, fueling stations and product sellers (such as motor oil brands), you may be able to find general business grant opportunities based on your ethnicity, gender, location or other factors.

Take advantage of business credit whenever possible. Business credit can afford opportunities to defer certain start-up costs until your business starts making money. Purchase equipment and vehicles on supplier credit, for example, with the obligation to either pay the invoice in full or begin making periodic payments at least several weeks after receiving the goods. Obtaining credit from suppliers can help to reduce costs in a number of areas, including office supplies, furniture and even inventory for fueling stations.

About the Author

David Ingram has written for multiple publications since 2009, including "The Houston Chronicle" and online at Business.com. As a small-business owner, Ingram regularly confronts modern issues in management, marketing, finance and business law. He has earned a Bachelor of Arts in management from Walsh University.

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