When starting your own business, you will quickly realise that the prospect of raising capital is a significant hurdle.
You might have the greatest idea in the world, but if you can't access the capital to turn your vision into reality, then you're going to struggle to get your enterprise off the ground.
Fortunately, in today's age, there are many ways to get cash beside the traditional business bank loan. Business owners can use a combination of conventional and innovative funding methods to broaden their options and, while it won't be easy, at least there is a wider pool of potential investment to draw from.
Getting Funding for a Business Idea
To illustrate how, here are nine ways you can secure funding for your startup:
If you believe you have such a fantastic idea that it will make other people want to help you financially, then crowdfunding is an excellent way to get some funds. There are several large crowdfunding platforms to choose from, too, with Kickstarter one of the most highly recommended.
What's particularly great about Kickstarter is that it categorises funding projects, and once your project is approved, then you can set your own goals. Other crowdfunding platforms include Indiegogo, Causes (used primarily for non-profit organisations), Rockethub and Patreon, although many others exist.
That said, to get success through crowdfunding, you will need a strong online social network since many crowd funders will consider the number of followers when analysing the reach of their investment.
2. Angel Investment
Whether you are trying to upscale, or need funding for a new project, an angel investor can come to the rescue. Angel investors will not only give you the capital you need but will also share their business knowledge. To impress them, you should have a thorough understanding of what you are attempting to do to convince them to invest.
A detailed and reliable business plan is an essential requirement and should be checked carefully for any errors and oversights. Angel investors will want to see that you have a course mapped out, that your strategy is a considered one, that you are aware of your environment, and, most importantly, that you have an exit strategy in place.
If you are going to present your idea to an angel, you should also have someone with strong managerial experience within your setup.
There are hundreds of government and privately-backed grants out there available for business people and entrepreneurs, with some intended to promote technology and innovation, others to boost female entrepreneurship, and others to promote young entrepreneurship. Whatever their purpose or cause may be, do your research: many countries and areas have programmes for funding.
In the UK, for example, you can find information on small business grants from The Entrepreneur Handbook, while in the US, a good starting point is the Federal Grants web portal. If you live in Europe, you can also find funding from the EU, which offers various funding programmes to its member states' citizens.
Whatever your location, bear in mind that grants are intended to support local business people and are not just free handouts. Any money you do receive will likely be monitored and audited, too.
4. Venture Capital
If you are willing to offer up shares of your company in exchange for investment, then venture capital could be a reliable option. The main benefit here, especially in comparison to bank loans, is the fact that you are trading a stake in the company instead of accumulating debt (like you would with a loan). This method is especially beneficial for startup companies that have no track record or credit history, which can make it more challenging to acquire a bank loan.
There are specialist venture capital firms who invest in startups and small businesses to secure a return on their investment; as with angel investors, you should expect your business plan and your financials to be heavily scrutinised, while a temperament for negotiation might also come in handy.
Do you have an existing business in operation, and you need money to fund your next projectOr maybe you need cash to buy new supplies? If so, then factoring is also an option available to you.
Factoring or invoice finance is a finance method where a company agrees to sell their invoices to a factoring company (at a discount) for cash upfront. The main benefit of this funding method is that most factoring companies manage credit control, meaning you don't need to waste administrative resources on chasing up customers that don't pay. However, it's also an expensive way of gaining funding; there is usually a high fee attached to companies selling receivables, so calculate the interest you will pay before you sign any agreements.
If you don't want to create debt or give up a portion of your company, then bootstrapping is the way to go: this means that you fund yourself by reinvesting a percentage of your profits straight back into the company.
Although it sounds easy, bootstrapping requires extreme self-discipline. Costs must be handled very carefully, while all planning should be built around the budget. If, for example, you are in the early stages of your business journey and you don't require physical office space, then avoid the costs by working from home; in the same vein, consider managing your inventory by choosing distributors and suppliers that ship your product directly, to avoid storage costs.
Depending on the type of business you wish to run, bootstrapping is a viable means of funding, although it should only be considered as an option if you have a healthy turnover of profit.
7. Family and Friends
Relying on family and friends for investment is a standard route to take if you're a startup. You don't usually have to convince loved ones of your idea, but it's wise to have a business plan in place to avoid any unpleasant surprises.
To make things more official, draw up contracts for them to sign so that you are both covered and understand the terms of the agreement. It will not only ensure that you receive the money but can also save the risk of you ruining personal relationships along the way.
8. Credit Cards
It's possible to use your credit card as a quick way to pay for equipment and materials, or even cover the costs necessary to provide a service to a customer. You should be extremely careful if doing so, though, as failure to pay back your balance on time will result in damage to your credit history. Also, by paying a minimum amount every month, you will end up paying back a lot more than the amount you have borrowed.
Nonetheless, if used wisely and as something of a last resort, a credit card can help you out on those unforeseen occasions when you need money fast.
Since it is usually easier to get a microloan than a traditional bank loan, it might be worth applying, especially if you are starting your entrepreneurial journey. Do your research and explore the options that are local to you.
One benefit of this type of funding is that, in many cases, microlenders act as counsellors, helping you manage or improve other aspects of your business, such as business plans or set marketing strategies, while you can also be approved even if your credit is not perfect.
What other forms of business funding would you recommend? Let us know in the comments below.