Top Sources of Funding for Startups
It is common to have a business idea and fail to raise capital to start the business. Startup funds are always there, but you need to know how and where to get it. The best option is to put all the options of funding on the table and then go for that is convenient.
The following are the best sources of funding for businesses.
Bootstrapping Your Business
Bootstrapping is self-funding through savings and other investments. It is a low-risk means of funding your business. It is challenging for people who are starting businesses for the first time to get funding elsewhere. It is because their businesses do not have a credit score. If you have a source of income, you can set aside some savings to start a business. This is the best funding option since you do not need any collateral neither do you need a deadline to get back the money.
Crowdfunding
In the recent past, crowdfunding has been gaining traction. It is overtaking loans and other ways of borrowing. It can be difficult to get a loan from a financial institution, thus making crowdfunding popular. An entrepreneur will state the goals and the benefits that the business will bring about on a crowdfunding platform. When people read the business goals and the required capital, they contribute towards the idea. To succeed in this kind of funding, you may need the help of an influencer. Also, you can liaise with crowdfunding companies.
Friends and Relatives
If you have supportive family and friends; you can consider sharing with them your business idea. However, it is always risky to mix business and relationships. As such, you need to draw a line between friendship and business. It is because a business is likely to destroy your friendship, especially if the business fails. If they agree to lend you some money, make sure to have an agreement and do it in writing.
Business Loans
A business loan is a type of credit that is advanced to businesses that are starting. The loan is advanced in a lump sum with two business days. The loans usually attract lower interest rates compared to other types of credit. The lender may require the business plan to show how the money will be used and the projected business revenues of the business.
Business Incubators
Business accelerators or incubators mainly focus on businesses that require high startup capital. Business incubators work through the sharing of resources like the technical and advisory staff between the startup business and the incubator. This goes on until the new business is independent and then it goes on its own. Most of the businesses that receive this kind of funding are related to innovation and technology.
Government Grants and Subsidies
In some countries, the government provides subsidies to business startups to promote self-employment. There is usually a high demand for the grants and as such, there are stringent requirements that one needs to meet. You must provide the business idea, a work plan, project business revenues, benefits that the business will provide and completed application forms. In some countries, you may be required to raise a certain percentage of the startup cost.
Venture Capital
Venture capital is a good source of capital, especially where your business is a high growth startup. The investor then gets a share in the business. Venture capitalists deal with businesses that have high prospects and ones that require significant capital to start. The venture capitalists do a lot of research to find out if the business is viable. As such, they may ask you many questions and you would require doing a lot of research before presenting your business idea. Once the startup business starts to make profits, the investors will expect some returns.
Invoice Financing
Invoice financing is a good source of funding for a business. However, your business must be in operation and you must show invoices from your customers. The lender will use your invoices to determine how much he can lend depending on the invoices. When you are advanced the funds, you then need to repay the lender progressively as you continue to receive invoices.
Equipment Financing
This is a business funding that requires one to provide collateral. The collateral is not limited to equipment and since it can be any tangible asset. However, it is a risky source of funding because if you fail to repay the loan, the lender will sell the collateral to recover his money. However, with equipment financing, you can get as much funding as you may require. It only depends on if you can provide collateral of almost the same value with the loan.
Conclusion
If you are looking forward to starting a business and you do not have enough capital, consider getting the most convenient funding. Before going for loans, exhaust all other kinds of funding. Also, before borrowing or starting your business, make sure to research thoroughly and find out the projected business revenues. Calculate and determine if the revenues will be enough to repay any kind of borrowing.