Looking for ways to get funds for your young business or startup? Not to worry! We’ve helped you put together six practicable and effective financing options for your business. Whether you’re still in the business plan stage or you’ve built your business to a reasonable degree, the following ideas are viable and will help accelerate your business growth substantially.
#1. Personal Savings
The first option to consider while looking for funds for your business is your own savings. Even if your money doesn’t provide all the financing you need, investing some of your own will save you some money rather than borrowing everything. Such personal funds may include your job earnings, retirement benefits, profit-sharing funds, assets, etc. These options can give your startup the headstart it needs till revenue begins to kick on or while you explore some other financing options.
#2. Family and Friends
Finances from family and friends are also called love money. It’s not out of place to seek funds from family and friends. Some of them may give you a loan with or without interest, whereas others may help you with some funds in exchange for equity or a percentage of your business. However, you must be very thoughtful when bringing your family into your business and you must make it as formal or official as you would have done for outside investors.
#3. Business Loans
Since there’s no one way to get funds for business, loans are a viable financing source. Through banks and credit unions, you can get funds that you’d repay over a given period with interest. It could be a personal loan, a traditional business loan, or some other loan plan, depending on your business plan and the type of assets like vehicles, land, equipment, etc. that you may need to purchase.
To access a business loan, you must be able to prove to the lender or institution that you’re creditworthy and will repay the loan when it’s due. You must also meet all their requirements, such as collateral or a minimum credit score (in some cases). One major advantage of bank loans is that you do not need to give up equity. But you must pay the interest together with the principal borrowed.
#4. Angel Investors
Angel investors, otherwise called informal investors, are wealthy individuals and experienced entrepreneurs who have the funds to invest in bussing startups or promising businesses. There are currently over 200,000 angel investors in the US, funding over 30,000 young businesses annually. They usually invest around $50,000, up to millions of dollars, either individually or in groups. So, if you are looking for funds within the range mentioned above, you may consider an angel investor. You can find one through networking.
One of the most admirable things about angel investors is that they usually also offer smart capital. In other words, aside from money, they also provide you with networking opportunities with their contacts and associates and also knowledge in specific aspects. So, it is usually more profitable to find an angel investor that aligns with your company as regards experience and niche-specific knowledge. These angel investors usually find new investment opportunities from their networks or platforms like Crunchbase, f6s, AngelList, etc. Also, try to have a clear, interesting, and easily scalable business plan that angel investors will find irresistible.
#5. Grants and Subsidies
In the US and most other countries, federal and state governments usually offer financial assistance or subsidies in form of tax credits or grants for startups and growing businesses. The government understands how difficult it can be to make an innovation materialize, so grants and subsidies are their way of supporting enterprising individuals.
These grants can help you save reasonable amounts on marketing, equipment, development, research, and salaries for your startup. You must bear in mind that a grant is conditional financing that you will not be required to repay. The condition is that you are legally bound to use the funds under the terms of the grant, otherwise you may be required to repay it. Interestingly, being a recipient of a government grant doesn’t usually disqualify you from applying again for the same grant or some other grant, provided you meet the requirements.
#6. Venture Capital
Venture capitalists are equity investors that provide financing for promising businesses with high growth potential in exchange for an equity position or equity stake, say 20% to 25% of your business. But first, you must consider whether this source of funding is ideal for your business. You must understand that these investors are after profit and are looking for high-growth potential companies, especially in IT, BioTech, communications, etc.
The venture capitalists take an equity stake in your company to help you find a promising and high-rise project. The capital term is usually from 3 to 5 years but could be longer. Within this period, it is expected for your business to have hit some financial highs and yield the expected returns agreed upon with the venture capitalist. When going for venture capital, do your best to work with investors that bring relevant knowledge and experience to your business.
Final Thoughts
Getting funds for your startup or growing business doesn’t have to be a hassle for the majority. The six financing options discussed above can help you find your business and get the results you need in no time. You can also combine several of these options and get access to the funds you need to take your company to the next level.