Starting a business on your own is difficult enough without worrying about funding it. When it comes to investing, it's no secret that starting a business requires a hefty one. Many entrepreneurs give up on their idea to start a business because they lack the funds to do so.
But, just because you don't currently have startup funds doesn't mean you should give up right away. What's more, you don't have to fund everything out of your own pocket from the start.
4 Sources of Startup Funding for Your Small Business
As a matter of fact, there are alternative funding sources you can leverage to financially support your business venture. However, getting funds isn't easy and you'll have to find a way to ensure financial aid. Friends and family may be a good start, but even they might not have enough to help ensure your business growth and development from a financial point of view. That being said, here are a few tips on how to raise funds to start a business.
Angel investors oftentimes financially support startups whose owners are passionate about their business idea. If you're trying to get rich fast with the help of your business, then you won't get any aid from angel investors. However, if you do convince them to help you, in return for their financial aid, angel investors will ask around 25% ROI. The trick is convincing them in the first place. It's important to understand that investing in a startup business is a calculated risk for investors.
That's why you must present proof that your business will be able to succeed. For example, you must present investors with a developed business idea and plans, proof of concept that consumers are interested in your products or services, financial forecasts and so on, in order to convince them. Without solid proof, chances are slim at best that investors will be willing to fund your startup.
Many entrepreneurs make the mistake of believing that angel investors and venture capitalists (VC) are the same. Although similar, angel investors and VCs have a different agenda when supporting businesses with funds. As mentioned before, angel investors support passionate business owners whereas VCs support a more aggressive mindset.
In fact, VCs will support business ideas with a potential to become profitable in 3 to 5 years tops. In other words, get-rich-fast is the kind of attitude VCs normally look for. In exchange for their financial support, they want shares of your company that will make them part of the decision-making process. The end goal is to earn profits from your company's shares when it reaches the stock market and also help drive your business towards becoming an even more profitable enterprise.
Funds from investments
Entrepreneurs who lack the initial funds required to start their business are oftentimes looking for a way to maximize what little they have saved up. If you're halfway there with your startup capital, you might consider investments in order to maximize your ROI. For instance, investing in stocks, bonds, shares, mutual funds and so on is a good way to raise funds. As an example, investing in stocks means buying a small percentage of some company's assets and selling them when the price increases.
What's more, you may opt for alternative investment types, such as real estate or antiques, and even monitor the gold price, in order to profit from coins, bullion or bars of precious metals. For example, you can buy a real estate property, renovate it and then sell it for profit or hang on to it and rent it for rental income and tax deductions. However, it will take some time before you increase your profits and save enough to start a business. Nevertheless, it's well worth the effort if you know what you're doing with your investment.
The first option many entrepreneurs consider for raising enough funds to start a business is getting a bank loan. Banks are a good source of lending and you may even get favorable pay-off and interest rate conditions for your startup loan. However, banks tend to be picky when approving loans and they won't simply give those away. The main reason is that banks tend to assess how risky it is to give out startup loans to entrepreneurs.
For example, they will check your credit score and credit history to determine the level of liability. If you have a bad credit score, you may get denied for a loan or charged with high interest rates. Also, banks may want to know if you have any collateral as leverage for your loans, such as a property or a vehicle. Last but not least, it may take some time before you get approved for a loan. Banks have a tendency to analyze the situation thoroughly before they make the final decision.
Raising funds for your startup business may prove to be a challenging task. If you lack the funds to fund your business on your own, you can still explore other options. Every option has unique advantages and disadvantages, so make sure you familiarize yourself with the terms before you decide on a solution.
Our guest author Elaine Bennett is a marketing specialist and a blogger, currently writing for Bizzmark Blog. Topics that she covers include marketing, branding, entrepreneurship, and SMBs. She’s especially interested in social media and technology.