One of the hottest subjects among entrepreneurs is the issue of funding. There is always a question in mind while starting a business, “How will I find funds to start my business?” There are lots of choices you just have to choose the right one for your business.
Every choice has benefits and drawbacks which don’t always available or appealing to you. The selection of funding depends on the amount required for startup. Therefore, you have to know what alternative of funding will be more suitable to your business and what are you willing to give up for transforming your dream idea into a feasible business.
There are various alternatives but we have compiled the top 10 ways to fund your new business to narrow down the best alternatives for you:
These days most of the entrepreneurs and business persons started to fund their business themselves which is also known as “Bootstrapping”. Self-financing is a little time-consuming. First, you have to save funds and then you’ll start and grow in business. However, an advantage of self-financing is that you have full control over the business.
Self-financing includes personal savings and selling out the personal assets. Every funding decision is hard, but you have to believe in your vision. You should feel comfortable while financing your own money into the business.
Funds from Friends and Family:
Funding from friends and family is the easiest way to get some initial capital for the startup. Your near and dear ones are more likely to believe in your visions. But when you turn your friends and family into investors, you risk your important personal relationships.
Unluckily, if the business doesn’t do well in the future, the loss of funds may hurt their feelings and destroy friendships. To avoid these circumstances, it is important to let your investors know that you take their money seriously. You should offer a strong business proposal and make sure that your investors know the true risks involved.
3. Use Crowdfunding:
Crowdfunding is the modern source of funding which is mainly based on online websites. It helps to interact with thousands of prospective investors. There are so many crowdfunding websites like Kickstarter, Indiegogo etc and every website is slightly different. Therefore, you have to know which site is right for you.
It is an effective way to raise funds for the business. You just need to post some promotional stuff for your business on the site to accept monetary support from those who visit the site.
4. Bank or Small-business Loans:
Though there has been plenty of news that banks are harsh about giving out loans. But, it is a good option for those who have a substantial guarantee and very good credit. A good business proposal and profitable estimations help to seek money from banks.
There is an alternative available to traditional bank loans, which are small business loans. These days many institutions are interested in lending to small business. Lenders want the loan to be secured by assets on the higher rate.
5. Angel investors groups:
Most of the urban cities have groups of rich individuals who are willing to invest in startups. Search online to find ones that relate to your business. It includes a group or an individual who offer cash in return for a share in the business.
Attracting angel investors is not an easy job. No matter how well the initial discussions go, the problem always comes in details. Therefore, it is essential to have solid and transparent business proposal and supporting evaluations with real estimations.
6. Request SBA loans:
SBA engages in several loan programs created for entrepreneurs who are having problems to get a traditional bank loan. SBA doesn’t provide loans directly. So, you have to visit a lending company or bank who deals in SBA programs. SBA loan requests are designed to meet SBA criteria so that the loan is qualified for an SBA guarantee. This guarantee signifies that SBA will pay back to the lender if you default on your loan payments.
7. Venture capital investors:
It is difficult to convince venture capital or private equity company to invest in very early stage of business. These are professional investors, which are not interested in small amounts of cash and usually looking to make reasonably large investments and take a significant share of the company.
8. Ask Partners or Customer:
Strategic partners can be a source of funding. They can benefit the business by aligning resources. Customers can also provide funds for business. Ask a primary customer, who sees your vision and willing to offer you an advance on royalty payments to complete your development.
9. Business Line of credit:
A Line of credit is another form of funding. You can seek to establish a line of credit with a bank. It is a smart source, but you have to be alert that line of credit is designed to be paid back on an annual basis. It allows you to use the amount of borrowing at a flexible interest rate. Plus, you can utilize and repay the loan on a flexible basis, only paying interest on the amount unpaid until the principal is due.
10. Pension to fund business:
According to study, the startup activity is lower among the over-50s age group. However, you can use the pension fund to finance your new business. If you are over 50, up to 25% can be immediately withdrawn as early retirement tax-free, either in one lump sum or as multiple lump sums or lots of little amounts. And transfer the remaining 75% into an approved retirement fund.
We have discussed the top ways to fund startup and it’s clear every option requires effort on your part. It doesn’t matter which track you choose if you have full attention on the business it will grow. Hence, you have to select a funding option which allows you to continue and focus on profitability.
Check out our post on estate planning as well.