Nothing is more exciting than coming up with a business idea that you and your peers believe will be profitable. However, turning that “dream” into a reality will not come without a few hurdles. One of the many challenges entrepreneurs face when actualizing their startup ideas is funding. The lack of enough starting capital can be demoralizing when you want to start making money independently from your business. You could end up selling your ideas or abandoning them altogether.
But before you throw in the towel on your ideas just yet, you should be excited to know one thing. There are various ways to get funding for a new business, even if you don’t have a pile of money sitting in a bank account. Let’s take a dive into these waters and look at a few alternatives you could consider to get funding for your startup idea.
1. Approach Family and Friends
Money can be a root cause of breakups when as far as the people we hold so dear in our hearts are concerned. However, you won’t lack a few angels in your small circle who are willing to take a dive with you. From your friends and close loved ones, you can find one or several people who believe in you and your ideas so badly, they could sell an asset to see you succeed. It’s always a big ask, and you will feel guilty, but you will have little to regret if the business takes off and your idea starts turning into profit.
Choose a person you can confidently share your business intentions and projects with, without the fear of getting double-crossed. Some can give you goodwill, while others can provide you with a loan. On the latter, make sure that you read and understand the terms before putting a signature on the dotted line. Whichever path you choose, be sure to weigh the consequences.
However, regardless of your relationship, make sure you get sound legal advice when dealing with funds from a close family or friend. Make them understand the risk they have taken to lend you money. Also, make them know that your idea could multiply or lose their investment. Alert them on both the risks and gains before accepting the kind gesture.
2. Crowdfunding
We thank heavens for social media from all angles and, most of all, how we make money online. If you are not generating any income from your monthly internet subscription, think again. Whether as primary income sources or as side-gigs, people are securing the bag from the comfort of their homes every day. That is not the point here, but at least you have something to think about when you’re on your phone or your laptop. Let’s talk about crowdfunding for a bit.
When it comes to raising business capital, crowdfunding has gained massive popularity over the years, and most of it happens over social channels. You may be wondering how it works. Crowdfunding is an approach where an entrepreneur provides a detailed description of what their business is all about appealing to the “crowds’ for assistance in actualizing their ideas. They provide their reasons for wanting to venture into such a business, their goals, and how much they need to get the ball rolling.
In short, the entrepreneur shares their business idea and model on that platform, and if the “crowd” gets convinced, they are convinced to help fund the entrepreneur’s venture. Its most significant advantage, you do not refund the money given to support your business.
3. Small Business Loans
This is inarguably the most common way to get financial boosts in business. It involves approaching institutional lenders like banks for either term loans or working capital. However, not everyone will qualify for a business loan from a bank because, well, to begin with, banks are not legally allowed to invest in starting businesses according to federal banking laws. There are various types of small business loans catered to distinct needs. If you’re wondering how to get approved for SBA loan options, understanding the specific requirements is key. For example, an impressive credit score often plays a crucial role in securing such loans.
The government can’t afford to risk money that people strive so hard to save over just because the bank got enticed by apparently half-baked ideas. When they invest in a business and become a flop, it will be a loss, and the bank will be at risk. This is why most banks will require an impressive credit score alongside credit history, and other documentation to show that the business has been operational.
Nonetheless, there are a few ways around it. If you have an asset such as a car or real property, for instance, you could use it as collateral for a secured loan and use the money to fund your startup idea.
Legal funding could also suffice for those starting their own ventures after suffering a personal injury. It could be an accident at work, a car crash, or a case of medical malpractice. Approaching a professional loan for lawsuit lenders in this case. They don’t demand too much documentation, proof of income, or interest. As long as you have high odds of winning a case, you can get a pre-settlement loan. If you lose the case, you also don’t pay back the borrowed money, meaning you could use the spoils to fund your business idea.
4. Bootstrapping
When the thought of having your own business up and running crosses your mind, your next thought will be how much is in your account. If it sounds strange to you, bootstrapping simply means funding a startup from your savings. Well, serious entrepreneurs find it practical to save up for a new business venture.
Ideally, self-financing is the best idea for most entrepreneurs while starting up their businesses. It is even psychologically healthy because you do not have to worry about paying back the money with very high interest rates.
Note that even when seeking financial assistance from other financial institutions, they will always ask “how much do you have” before giving you passage to a business loan. However, do not always rush to seek financial assistance. Start small, and then grow gradually. With the growth, you can now pursue an economic boost to expand your business. Other ways to fund your own ideas include:
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Selling an asset
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Using income from other investments
5. Angel Investment
They are also known as business angels because they come to you in the hour of need. Angel investors are a group of investors with extra money to pool their investments at affordable rates. They put their interests in upcoming businesses, and they go an extra mile to share ideas and experiences with the prospective entrepreneurs. We all know Yahoo and Google, don’t we? They are a perfect example of corporations aided by angel investors.
Before we go further, this is an investment option for an entrepreneur who does not need so much funding for their ideas. For those familiar with the famous “sharks” or Shark Tank investors, angel investors put their money in the pot to support your business ideas as an entrepreneur. Distinctively, these investors come at the birth of your vision. They are ideal for pregnant business ideas. That is why they are called seed investors.
6. Business Incubators and Accelerators
Financially speaking, incubators are the business parents, while accelerators are the ones who nurture the child to grow healthy. That is a layman’s literature explaining this financial concept. The two are programs that help many business owners to take giant steps financially. These platforms run between 4-8 months, where the young business owners are exposed to chances of meeting more investors, potential mentors, and fellow young business entrepreneurs.
7. Seek Out a Grant
Often, national and state governments offer small business grants, which you may or may not need to pay back. Private enterprises and non-profit organizations also offer them from time to time. As opposed to small business startup loans, grants are mostly issued as part of CSR or efforts to stimulate the economy or promote job market growth. The major downside is that you may not always get the amount you need, plus they are super competitive. Still, a small business grant can help if you have some time and want to complement other funding options.
8. Consider Venture Capital
Venture capitalism is another viable option for startups seeking funding for their ideas. As long as the venture capitalist shares your ideas and you have a good model ready to scale, they could jump on the bandwagon. If your idea is appealing enough to look like the next big thing, you have higher odds of getting venture capitalist funding. The major downside is that these arrangements are often short-lived, so the investor will want to be sure they recover their investment along with the agreed profit within a defined timeframe.
In conclusion, funding a startup idea can be nightmarish without adequate personal savings. It comes with challenges and frustrations, but this doesn’t mean it is not doable. From loans to grants, angel investors, bootstrapping, and crowdfunding, the few pointers above highlight some options worth looking into.