10 Ways To Fund Your Startup
In the world of startups, there is one saying that is repeated frequently, and as an entrepreneur, it will be one of the first obstacles that you will have to overcome – “how are you going to fund your business?!”
Ideas are cheap’, anyone can have an idea but what makes an entrepreneur different from someone who has an idea is the ability to put ideas into action. If you are reading this article you are probably one of the latter so congratulations on that! As you know by now the first obstacle you will face when starting a business is funding, where to find it, and what are the options available. How do you fund your start-up? In this article, I’ve compiled a list of the top 10 startup funding options that you can consider so read on!
Friends & Family
This method is accessible to most entrepreneurs who would like to start a business, especially when a bank may not find your idea creditworthy, however, your family will always believe in you and want to help out. Make sure you get sufficient legal advice for both you and your family/friends as the downside of this method is that while it may be the easiest it can also be the trickiest because it can test relationships.
SME or Small Medium Enterprise loans are special grants given by the government to banks to help small business start-ups. Applying for these can be a long and tedious process, however, you are likely to receive greatly reduced interest rates which benefit starts-ups greatly. Some grants do not require a payback at all, however, it is advisable to check them thoroughly before agreeing. The only downside of this is method is that grants are targeted for very specific qualifications, so you have to meet the specific qualification in order to apply.
Small Business Loans
Most banks will have a loan plan for small businesses, however, banks are known to be very cautious about lending money to startups/small businesses. While banks make it extremely difficult to qualify for loans, this is usually for your benefit too as they would like to ensure that you have a high possibility of paying it back as opposed to giving out loans to those who may not be able to pay them back and essential turning you into a debtor.
An age-old method that is not highly recommended but it can work sometimes if you can find a good match. There are communities of new business owners who are willing to barter their skills to get things done, and for those who have skills to offer and not enough capital to hire, this may be a viable option, but it will not be the easiest as most people will not be willing to work this way.
Another method often used by founders looking to get things off the ground is to trade equity of the business in exchange for capital. A partner will invest in your business if they believe in it and you will negotiate shared ownership for their contribution, however, it is vital to put everything down on paper and work together with a lawyer to iron out details on who makes what decisions and how involved the investor is allowed to be.
This is the most common method for beginning a business, ‘bootstrapping’, which is when you fund a startup mostly with your own money in the form of savings, credit cards, and mortgages to name a few. While this is one of the most accessible methods of funding a start-up, it is always very dangerous because if your business is not successful you will be left with a large amount of debt to pay back.
Dedicated startup incubators are popping up all over, these spaces provide communal workspaces and facilities to support startups and provide mentorships and development programs and as such, it can be a great place to get the initial boost you are looking for in your business, however, you may find that they can tend to be a little tech-heavy and this might be a problem if your business does not match this niche.
There have been a number of business that has started completely on crowdfunding sites like Indiegogo and Kickstarter, this method requires an exciting product as the potential buyer is buying a product that doesn’t exist yet and sometimes gathering the necessary funds may take more time than expected which can frustrate backers and lead to animosity even before the business takes off the ground.
Investors are always looking for great ideas to invest in and many successful shows have been started around this need. Shark tank is on but there are similar shows that have popped up all over the world and joining a local contest is an excellent method to get your idea in front of experienced investors. Even if your idea is not picked you can gain some valuable insight and the television exposure alone can find you alternate investors who may be interested in your product.
Don’t quit your day job
Last but certainly not least, it’s advisable to keep your day job for as long as makes sense to reduce strain on yourself. Cash flow problems will not only hinder your startup but it can even affect your motivation and workflow if you are plagued by money problems from the beginning. Staying in your job for as long as possible will also help you save as much as possible to fund your business, however, the downside is that your time will be split between your 9-5 and your startup. In some cases, this may lead to a decreased performance on both parts and even missed opportunities – so determine when it the right time before jumping ship.
If you’re figuring out how you’ll fund your startup: