Just getting started with your online business?
Perhaps you’re looking for ways to secure startup funding to get your business off the ground, just like many other startups.
Whatever the case may be, securing financial resources is essential for businesses of all shapes and sizes.
If you have a valid concept or idea, then funding could be what you need in order to get your startup up and running.
Should you rely on family and friends to fund your startup? Are there other options?
In this article, we'll go through 5 ways you can get funding for your startup.
Crowdfunding is a great way for startups to raise money when they don’t have the capital to fund their business.
The idea behind crowdfunding is that people can see your product or service in action before they commit to funding it.
This makes it easier for potential customers to invest in your company and potentially reap the rewards of its success.
Kickstarter and Indiegogo are two of the most popular crowdfunding sites, but there are many others — such as Fundable, Crowdfunder and GoFundMe — that you can explore if these two aren't available in your area.
Each site has its own rules and regulations, but they're all easy to navigate if you know what you're doing.
Venture Capitalists and Angel Investors
VCs typically invest a lot of money, and their investments have a very high rate of return – over 200% in some cases.
But VCs don’t typically provide funding for startups that are just starting out.
In the early stages of a company, founders often need to find other sources of capital – from family members or friends, from small angel groups, from local banks, from angel investors – to help them grow their businesses.
Angel investors can be a natural fit for startups at this stage, because they’re interested in your long-term growth and success as much as you are.
They want to make an investment in your company, and they want to be part of the future success of your company.
Small Business Loan
In a nutshell, small business loans are ways that businesses can receive funding from private investors or banks to fund start-up costs.
These loans are categorized as either secured or unsecured, and secured loans require you to put up collateral for the loan in order to secure the loan.
Unsecured loans, however, do not require any form of collateral to be used for securing the loan.
Before applying for a small business loan, there are some factors you should consider:
Do you have solid credit? If you don’t have good credit score, then you will most likely get rejected for a small business loan.
Ask yourself if your income is sufficient enough to cover the repayment of the loan.
If it isn’t, then you may want to reconsider asking for a small business loan.
Conversely, if your income is too high (above the bracket for a small business loan), then it may be hard to get approval.
What is your net worth? You should also consider how much debt you currently owe, and how much money you have in your savings account.
Your net worth should be equal to or greater than 80% of what your monthly expenses are, so that there is no excess debt that could hurt your business when it’s time to repay the loan.
What type of business are you starting? It may seem like an obvious question, but one that many people forget about when they’re trying to start their own company.
The size of your business may determine which type of financing option would work best for you.
How long do your plan on keeping the company open? If it’s less than five years, then chances are, you will be rejected for a small business loan.
Friends and Family Funding
This is the least invasive and most common form of funding, and it's also both the least and most controversial.
It does take a lot of work, though.
You usually have to give your friends and family a presentation that explains your business idea and how you've come up with the idea or product.
Then, you'll need their help in putting together the startup.
Your friends and family may be willing to invest, but they will want something in return.
Most likely, they'll want equity.
Maybe they'll want a small percentage of your company, or a percentage of whatever money you make after it's sold.
If this is the option that you go for, you will need to talk to your friends and family to see if they would be interested, and then you can start talking numbers.
Credit cards are widely considered to be the most accessible form of funding for startups, and small businesses.
With credit cards, you can secure a line of credit without providing collateral in the form of cash or personal assets.
The downside is that you will need to make payments on time, or else risk having credit card fees that could put you out of business.
If you're going to rely on getting a credit card to fund your startup, it's important that you always pay more than the minimum payment, get a credit card with a low interest rate, and never go over your credit limit.