Business Startup Funding: What Are The Options?
Every business that currently operates successfully was once nothing but a dream. It was just an idea and a desire in the mind of the entrepreneur who created it. Sheer force of will and a determination to succeed is all it takes to bring that dream into reality.
Except… not quite.
If you read any business guides, then you’d be forgiven for thinking business is about nothing more than determination. Of course, there’s no denying that determination is a useful asset for an entrepreneur – but it’s far from the only one. Perhaps the biggest hurdle that any fledgling entrepreneur has to cross is not summoning up their spirit, but finding the funds to launch their business.
In some instances, this will be simple. Many people choose to make a personal director’s loan to their company, funded from their own finances. Even if this is something you can afford, however, it’s not always the wisest decision. If the company doesn’t succeed, then it’s your personal finances that will be taken down with the sinking ship. It’s easy to see why it’s sometimes preferable to not be able to finance your own startup; it may feel restrictive, but it’s inherently safer.
So if you don’t want to put your own cash on the line, what are the options for startup funding? You can’t pay your suppliers with determination alone, which is why you’re going to need to investigate one of the following choices.
#1 – Angel Investors
Angel investors are investors who specialize in funding startups. They will usually provide money for a low rate on the back of the strength of your business plan.
- Experienced investors who may be willing to guide you in the first phases of business.
- Get the money you need without having to pitch to multiple investors or risk your own money.
- Investors will expect both their money back and a share of future profits in exchange for their investment.
- As angel investors are much sought after, you may struggle to find one willing to invest in your business, whether it is a non-profit business or a traditional corporation.
#2 – Crowdfunding
Crowdfunding – via companies such as Kickstarter and IndieGoGo – has been all the rage for a few years now. It offers startups that might otherwise have been overlooked a chance at success.
- You do not have to offer a share in future profits or a percentage of your company, as you would with a conventional investor. You may want to offer incentives to encourage people to pledge more, but this is far less restrictive than having to hand over equity in your business.
- The aforementioned incentives to invest not only work for their intended purpose, but have a further use besides. They can excite people about your company, giving you a ready-made customer base to launch your business to. With proper IndieGoGo and Kickstarter fulfillment helping to take care of the logistics, this can be a lucrative way of not only obtaining funding but potential future customers too.
- There is no guarantee that you will be able to meet your goal, meaning that any pledges will not be received. Always keep your target amount small to try and offset this risk.
- The general public, not experienced business professionals, invest via crowdfunding. If you feel you need someone to help with your business, then this might not be the best option for you.
#3 – Traditional Bank Funding
Finally, the most popular option; meeting with your bank in the hopes of ensuring a loan.
- If your business plan is strong, then your chances of investment are strong.
- When a bank loans startup costs, they will usually offer further business advice. This can be particularly useful if you are new into the world of business and managing the financial side of things.
- Banks are generally fairly restrictive about their lending practices. If your business plan isn’t flawless, then you have little chance of success.
- You may be offered funding at a rate that means your business is immediately paying the loan back. Bear in mind before you accept startup funding that banks are going to be less forgiving than individual investors. They are more likely to do their calculations based on basic numbers rather than applying considerations to how things happen.
With the options in front of you, all that’s left for you to decide is what is going to work for you and your business. Of course, it’s always a good idea to check out all of your options before you make a final decision. Find out what might be a good fit for you, then you can finally put some of that entrepreneurial determination to use.