As an entrepreneur with a burning desire to build a stable startup, funding tends to be the primary stumbling block. If you are not well equipped with the necessary knowledge, the process of securing the required funds can be quite daunting. Basically, most startup owners experience hardships because they start off with misplaced expectations and try to get funds from inappropriate sources.
At the end of the day, you ought to be ready to endure and stay committed to the goal of getting the funds. This implies that you must be ready to deal with any form of rejection that may come your way. In this article, you will learn more about the various sources of money for your startup.
Personal savings
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Tapping into personal savings is an option utilized by many business owners when the startup is still young. If you are in a position to afford it, this is a great option since you are in full control of the amount you can access.
Here, you won’t need to speak to investors trying to justify and validate your business idea. In addition, you can use the funds in any manner you choose. Nevertheless, this also means that available funds will be limited to what you’ve saved.
Normally, saving enough money to take the business off the ground requires commitment and consistent sacrifices. To save money every month means that you must forfeit some expenses that don’t add value to your life.
Angel investors
If your startup is dealing with tech services and products, chances are that you need significant amounts of money to actualize the idea. More often than not, it requires more cash that you will get when you bootstrap. This is when you should consider outside investments.
Angel investors are people with sufficient amounts of money and they focus on investing in startups that demonstrate a good potential for success. If an angel investor is interested in your business, they can give you any amount above $10,000.
Besides networking with other entrepreneurs in your niche, you can get information and funding opportunities online. Online platforms like AngelList are well-known for their role in helping innovative entrepreneurs connect with appropriate angel investors. By staying updated to the activities in the investment sector, you can learn about some networking events and competitions that provide both capital and invaluable networking with investors.
Venture capital
When you need huge amounts of capital, say about $1,000,000; venture capitalists are your best bet. While they demand a comprehensive business plan with clear projections, they have the capacity to avail huge capital requirements.
Most venture capitals operate as investment firms and they offer businesses some capital in exchange for some equity in your business. Since the capital amounts offered are huge, a venture capital will take an active role in the management of the business. Basically, they are accountable to their investors and hence they need to make firm business decisions to make sure the invested funds are recovered.
In most cases, the portion of equity required by venture capitals is predetermined and it’s not easy to renegotiate. Most venture capitals prefer working with startups with a promising future and the potential to grow at a very high rate.
Crowdfunding
Crowdfunding will help you raise capital from a group of people on an online platform. In exchange for the money, you should be ready to offer some equity or other forms of rewards. When the crowdfunding is reward based, the people contributing will receive a product or service. In addition, the money must have a specific goal which is presented at the beginning of the crowdfunding process.
Equity-based crowdfunding is still a new concept and systems are still being laid down to facilitate the process. There are many regulations governing this option since you will be dealing with people without sufficient investment experience. As such, the law requires that you abide by the laid out regulations before you can access a big number of investors.
SBA loans
The SBA has business loans guarantee programs and the MicroLoan, as well as the Community Advantage programs, tends to be the most appropriate to startups. While the initiative has several programs under its wing, some are best used when your business is already established.
To use this option, you need to have a credit score of 680 and above as well as pledge some form of collateral. Basically, you can get up to $250,000 with the two programs geared towards underserved enterprises.
To improve your chances of acceptance, it’s advisable that you finance at least 30% of your own money. The loans have low interests and the payment term is quite flexible.
Personal loans
Until you can prove to the online loan lenders that your business is viable by demonstrating growth, you may have to rely on personal credit for loans. Nevertheless, this is an option that ought to be used with care rest you damage your credit scores.
You can either consider HELOCS, personal line of credit, or installment loans. With all these options, you can select the one offering most value based on your needs. Basically, you will be safer if you borrowed money when the intended expenses will give a direct income in the near future. In addition, you should always strike a balance between affordability and the expected returns.
Final words
Getting the required funds for any business can be difficult. On the other hand, securing the funds brings a lot of satisfaction since you can now focus on building your business. If you target the sources that are most suitable for your business, you can maximize the chances of getting the funds.
Raj Kumar is a qualified business/finance writer expert in investment, debt, credit cards, Passive income, financial updates. He advises in his blog finance clap.
