Photo: Philip Taylor
Launching and growing a business will always require money in some form. There are some business models that you can start with minimal or even no capital. But it’s not always possible. Securing funding for your business idea can be difficult. However, there are a number of options to consider and avenues to explore. If one method of funding doesn’t work for you, you can try others. Many people go straight for a bank loan, but that’s not your only option for funding your business. Whether you’re starting up or trying to grow, think about using one or more of these options. Remember, you don’t have to stick to only one.
Dig into Your Savings
If you have some private savings, you could use them to fund your business. Of course, it means you will no longer have the money for its original purpose. Perhaps you weren’t saving for anything in particular. And you’re confident that you’re going to be able to replace the money. It’s cash that’s already there for you to use, and you won’t have to spend time trying to get money from other people. However, there are downsides to using your own savings. You might not have much to start with, and once it’s gone, it’s gone. Plus, you’re taking away your safety net, which can be vital when you’re trying to start a business. If you’re going to use your savings, it can be best to do it when you have another job to fall back on.
Hit Up Friends and Family
If you’re lucky, you’ll have friends and family who believe in you. And, crucially, they have a bit of money to spare that they can toss your way. You might have one family member who has a sizeable amount of cash they’re willing to loan or even give you. Or you might ask all your friends and family to give you a small amount. But you need to convince them that it’s worth it to invest in your idea. What are they going to get in return, apart from to see you succeed? You might offer them shares in the company or a gift to say thank you. A loan from a family member can better than a bank loan, with lower interest rates and payments. However, be careful that you do everything officially and draw up a contract. If you’re not careful, borrowing from family can get messy.
Traditional Bank Loan
One of the most common routes for people to try and secure funding is the bank loan. If this is an option you want to explore, you first need to have a solid business plan. You’ll need to present it to the bank and convince them that you’re going to be able to pay back the loan. Securing a bank loan for your business can be tough, so don’t expect to be handed one right away. You need to put a lot of work into your proposal and show that you’re financially responsible. Many potential business owners find themselves unable to get a bank loan. So don’t despair if you don’t succeed. There are other options.
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Some methods of raising capital are becoming more popular, thanks to the internet. Crowdfunding is one of the things that people are using more to fund all sorts of things. Some people use it to pay for a creative project while others crowdfund the launch of a new project. The great thing about crowdfunding is that it’s not a loan. Usually, people give you however much they want to, and you give them something in return. People put their money into various projects just because they want to see them succeed. You can offer a range of incentives to get people to give their money. They could include little goodies or expensive products.
Angel investors are also a popular way to fund your new business or to start growing it. However, they can sometimes be difficult to find. It can be especially hard in some locations compared to others. You may find that it’s easier to get funding if your business is based somewhere with an active startup community. Your business angel could be a friend or acquaintance you met while networking. One of the bonuses with using an angel investor is that they don’t just give you money. They can also help you by providing you with guidance and advice to grow your business. You have their money, so it’s in their interest to help you succeed.
Securing a Business Credit Card
Another way your bank can help you with funding is by providing you with a credit card. It can help you to get started and to grow your business until you’re in a stronger position. If you’ve tried other financing options, a start up business credit card could be a good solution for you. It can help to bolster your finances and can earn you rewards too. However, there are risks to consider if you want to take out a credit card. Firstly, banks will look at your personal credit information to decide if you should have a card. If you don’t have a good record, you might not have much of a chance. Banks will usually ask you to provide a personal guarantee. That means that you will pay off any debts the business can’t repay. However, some banks will waive the agreement after you’ve been in business for a few years.
Photo credit: Omer Unlu
Your bank can also help you out by providing you with an overdraft. Of course, it’s unlikely to be enough to fund the launch of your startup. But if you have a sizeable overdraft it can be an excellent way to boost your funds when you need some quick cash. Perhaps your cash flow isn’t as synchronized if you need it to be. You can have funds to take out while you’re waiting for more money to come in. It may not provide you with vast amounts of cash, but it will keep you going in the leaner months. Remember that there will be interest to pay, however.
You might be able to find some business grants that are available to you. These can come from government agencies, charities, and other organizations. To access them, you would usually need to meet certain requirements. They might be looking at you as a person or at your business model. For example, you might belong to a minority that needs more representation in business. Perhaps you’re hoping to launch an eco-friendly business. You could be competing with lots of other companies and business people for these grants. If you want to have a chance of securing them, you will need to be confident about your business plan. You should be able to explain it well and talk about why you deserve the funding.
Private Equity and Venture Capital
Using a venture capital or private equity firm isn’t the easiest of options for a startup. They usually don’t deal with small amounts of money. So they’re more likely to work with a growing company. If you have big dreams, and your business is already on its way up, it could be a good option for you to continue expanding. It can be very hard to get them to invest in your company, but that doesn’t mean you can’t convince them. You’ll need an awesome business plan to show that you can grow quickly. You need to prove that you’re worthy of investment. You need to show that you’ll be making them money.
You can also consider using corporate venturing. An established company can incubate you to provide you with the funding, advice, and support that you need to grow. Using this method does mean that you won’t have full control over your business. However, this is true to some extent for many funding models. You need to make sure you find the right firm to work with. If you can discover someone that suits you, they could provide you with everything from office space to mentoring.
Some businesses can get started on very lean funds. If your company can begin with little or no capital in your home office, you can use your profits to support your growth. All it takes is funneling the money you earn back into the business to help you expand. It’s a good way of funding a company such as one offering professional services. Your primary product is your skills and experience. So you don’t need funding for manufacture or other expenses. It’s not the method that’s going to help you grow extremely quickly, but it can be a safe way to help you get off the ground.
You have lots of options to choose from if you want to fund your new or existing business. Don’t forget that you aren’t limited to only one method of funding. You can combine several of them to build capital.