Gathering adequate funds is the most challenging part of starting a business. And also the most important, because no matter how great your ideas, you won’t be able to do much without money!
Whether you intend to self-fund your startup or consider investments in the form of debt or equities, you need to know your funding sources well.
Here are a few of them to consider.
If you have the means, self-funding can prove to be the best thing for your startup. Why? Simply because you’ll have easy access to the funds and you won’t have to waste valuable time looking for funds elsewhere.
The biggest advantage of self-funding your startup however, is that you’ll be able to retain and exercise ultimate control over your business. So even if you intend to take a bank loan, self-fund as much as possible.
Here’s how you can go about self-funding your startup.
- Use Personal Savings
If you have amassed a fortune over the years, you’re in luck! Several business owners choose to invest all of their savings in funding their startup. By investing your own money, you won’t have to worry if your business doesn’t take off right away or worse, if it fails.
With no creditors breathing down your neck, you can do things at your own pace. But it certainly wouldn’t be wise to throw everything to chance, especially if you’re planning to tap your retirement or rainy day savings. Fund your startup with your personal savings only if you have a huge lump of cash lying around with no other use.
- Sell Personal Assets
If you don’t have enough spare cash, you don’t have to put your plans on hold. You might have personal assets that you can use to fund your venture. You only need to think of what assets can you use to your advantage!
Whether you plan to take a second mortgage on your house, do away with your expensive art collection, or sell your unwanted gold, making use of your personal assets to fund your startup can be a good idea. But do consider the risks before doing anything; you can’t put everything you own on the line to finance your business.
- Go for Personal Debt
If you find it hard to secure a business loan, you can always consider getting a consumer loan. Personal loans are easier to obtain and involve less paperwork too.
You’ll have to make it clear to the bank that you’ll be using the loan to fund your business, though. While some banks may approve of this, others may refuse to lend you money for business investments.
Alternatively, you can choose to re-finance your mortgage or make business purchases using your credit card. Just make sure that you have a good credit history.
Further to this, you can always borrow money from friends and family if they are willing to help you out. If your business doesn’t do as well as expected, make sure your relationships aren’t strained.
If possible, you can also channel business cash flows back into the business. Start on a small scale and use the profits generated to expand your business as and when needed.
Look for Investors
While being able to fund your startup by yourself is great, you stand the risk of losing all your savings and probably, even your house. If you want to play it safe, find an investor for your venture.
If you’re looking for growth, you may not be able to meet your goals with less money. By collaborating with an investor, you’ll have the required funds to propel your business in the right way. What’s more, you’ll also be able to network with other experienced people and find more opportunities for your business!
- Approach a Venture Capitalist
If you need a big loan, a bank may not process it if your company is new and unproven. Venture capitalists can provide required funds to startups considered to have a high-risk potential. However, these investors are more interested in companies that are expected to grow rapidly- by atleast 20% a year.
It is also important to note that venture capitalists do not just loan out money to you. They invest money in exchange for shares, board seats, or executive positions so that they can have a say in future decisions.
- Seek Angels
If you aren’t willing to let someone else gain a strong hold on your company, you should consider seeking an angel investor. Angel investors are people looking to invest money in places where they can get better returns.
Depending on your agreement, your angel investor can invest money in return for partial ownership or he may just be happy with you repaying the debt.Most angel investors also have strategic experience so they will be able to provide a tactical benefit to your company too.
- Turn to Crowdfunding
If you want to raise funds for your startup without giving up equity stakes, your best option is crowdfunding. There are several crowdfunding websites that allow you to raise money for your venture for a percentage of the money you raise.
These sites allow you to accept investments from a number of investors instead of a single investor. You can choose to give up equity shares to the investors in return for their contribution, or pledge a reward or free product to them.
You’ll need to state a goal for your investors and you can keep whatever money is raised through the crowdfunding campaign. However, some sites require you to reach the goal if you want to keep the money raised.
Now that you know about these common funding sources, you certainly have nothing to worry about. Pull your socks up and get started on your venture!