Funding is probably the most important factor when considering a new business idea. Even small and simple businesses require a certain level of funding today. This is due to all kinds of expenses associated with running a profitable business today. Acquiring some sort of funding in order to meet initial startup costs before a company starts turning out a profit is the way most new businesses take off. The method you use to raise money is also dependant on your company’s business model and needs. Here are 5 ways in which you can get funding for your business.
Bootstrapping
Bootstrapping refers to entrepreneurs that make use of their own personal cash for funding their projects. This can come in the form of credit cards or savings accounts. This is an ideal approach for most people as the fees involved in such funding isn’t too bad. This is also one of the easiest ways to acquire funding as it is all done personally.
Also, if it is cash from a savings account, then the pressure to pay it back won't be that severe. However, the thought of all those years spent saving that money can entice an entrepreneur to perform better in the hopes of not failing. The choice of bootstrapping is also dependant on the type of business that the funds will be used for.
Some businesses, such as retail stores, require large amounts of funding in the initial first few months. The overall investment has to cover for high inventory and operational costs which will only be offset by sales at a much later stage. Personal finance alone may not be able to handle this kind of expenses. It’s best to consider bootstrapping for smaller projects.
Friends and Family
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You may have an incredible idea for a new business that needs to get off the ground right now. Coming up with your own funding immediately isn’t going to work. So why not seek some external funding from family and friends? This can be a great way to acquire the necessary equipment and tools for your business.
Friends and family could also assist in situations when you do have your own cash which isn’t sufficient enough. A friend could help inject some much-needed capital into your business inventory. This is perfect for stocking up before those busy year-end periods.
The effectiveness of you acquiring cash is left up to you and the relationship that you have with your friends and family. Some people may not be as enthusiastic to lend you money as you may initially think. It’s best to have a clear business plan and objective behind using their cash. Also, make it clear on whether or not they will get their cash back. Is the money a gift from them or loan?
Angel Investing
If you are in an almost niche industry that may require larger amounts of funding, its best to seek outside funding. Funding for a niche project or business can come in the form of Angel Investors. In most cases, Angel Investors are wealthy established professionals who tend to finance up the coming businesses with their own money.
An example would be an Angel Investor funding your firm that conducts heavy research in science or technology. They may have a great personal interest in that particular field that you specialize in. Financing your company may be their way of contributing towards your cause.
There are plenty of Angel Investor communities out there that support thousands of start-ups. However, some Angel Investors may not be able to assist you immediately as they may have already committed to other projects. They can still, however, refer you to another Angel Investor within their network. This is why Angel Investor communities can be useful.
Crowdfunding
Crowdfunding allows for a larger pool of smaller investors. This is a good option for those without support from family or friends and is not ready to take the leap into angel investing. Crowdfunding is a great way to achieve funding for a creative project like a documentary or a music album. Though many new business start-ups have recently taken advantage of this great investment platform.
There are currently many online crowdfunding portals such as Kickstarter and Indiegogo. You create a pitch for your business or product and set a target amount that is required for you to launch your offering. Micro investors from all over the world can visit the website and invest in your idea. You can set up rewards and discounts for these generous investors once your product has been launched.
This is ideal for companies that require upfront funds for inventions that they wish to start production on. These companies can use the funds gathered in their Kickstarter campaigns to produce and ship their products quickly to clients in order to get their name out there.
Bank Loan
Bank loans in modern times have become a strict and intricate affair. Two of the most important variables needed in order to achieve a bank loan is collateral and the ability to pay back the loan effectively. In order to achieve a loan today, you will require a solid business plan backed by your companies past financial statements.
It is difficult to get a loan from a bank if you are just starting out a business. Unless the bank offers loans to small entrepreneurs that are backed by the government. The main reason most people take out bank loans is to increase the financial leverage of their business in order to increase growth. This can come in the form of renovating premises with the hope of serving more clients and housing more inventory.
If your business has sustained a consistent level of growth while maintaining an excellent business model, then banks will be encouraged to assist with a loan. It is important to note that business loans are strict contracts that incur large administration and interest fees. It may be a better option to rather consider a temporary overdraft facility.
It is essential to note that a business plan is required in order to acquire finance from most sources, even with some friends and family. A big part of being an entrepreneur is the ability to raise funds. An even bigger part is the ability to pay back the money that they borrowed. Some investors may not expect money back, especially if it is a small amount. You should still try to pay back a small amount as a token of appreciation.
