Funding for Start Ups
Thousands of people have great business ideas that never get turned into legitimate companies. You can have the best idea in the world, but if you can’t execute it, then it’s worthless. One of the hardest parts about starting a startup is acquiring the funding you need to get the business off the ground. If you’ve never owned a business before, this can be even harder – lenders and investors want to know that you have a great track record in business. They’re not just investing in your idea, they’re investing in you. One of the most common questions prospective business owners ask is: how do I fund my start up? There is no single answer to this question – fortunately, there are tons of ways for you to fund your start up.
This article will overview the various ways that you can fund your startup. The options available to you will depend on the type of business you are trying to start and the business experience you have.
Traditional Bank Loan
The most basic way to fund any startup is through a traditional bank loan. A traditional bank loan is normally extended by a financial institution that will provide you with a set amount of capital. This capital will then have to be repaid over a set amount of time (term) at a predetermined interest rate. This is a relatively affordable way to get money to start a business. Traditional bank loans have much lower interest rates than other form of finance, such as credit cards or lines of credit. The only downside is that many of these loans are secured, meaning if you default on the money you owe, or miss too many payments, the bank will own your business or some of its assets.
The problem with a traditional bank loan is that you normally have to have some lending history to acquire one. If you don’t have lending history, you typically need to have assets to sign over for collateral – which is typically not possible for many first-time business owners.
This is one of the most popular ways people fund their startups. You can sell equity in your business to an investor in exchange for working capital. There are a number of reasons this is a great option. Firstly, you don’t have to take on any debt, which is always a more efficient way of running a business. Secondly, you have an investor who has a vested interest in your company succeeding – this means they are likely to extend access to more capital should it be needed for the success of the business.
The major downside to selling equity in your company is simply the fact that you own less of it. Many people who start a startup don’t want to part ways with some of their ownership at such an early and undervalued stage of the business cycle. In addition, if someone owns part of your business they also may try and influence your business decisions – this is not desirable for many startup owners. But the harsh reality of it is that sometimes it will be necessary to sell equity to fund your startup – you should consider an investor’s willingness to invest in your idea a compliment.
Apply for a Small Business Grant
What many people don’t realize is that the U.S. government has set aside money to be spent on small businesses. Start up business grants can be obtained if you successfully apply through the www.grants.gov website. Have a look at which grants are available and see if you fit any of the requirements.
It can often be hard to find a grant that suits your startup, but if you do happen to find one it’s an awesome way to get your idea off the ground. All first-time business owners should research government grants prior to applying for any form of finance.
Get Cash Upfront from a Client
This may sound difficult but it is not uncommon. If you find a client that wants to make a large purchase with you, there is a chance they will be willing to give you the cash upfront for a discount. You will have to prove that you are able to produce the products you say you can. Providing them with prototypes and information on how you will use the money to manufacture them will go a long way in convincing them to give you capital upfront.
Don’t be scared to ask a client for money upfront. If they like your product or services enough that they’re willing to purchase them, they will most likely be willing to negotiate a deal.
Similar to getting cash upfront from a client, crowdfunding allows you to get capital upfront from the wider market place. Websites such as www.kickstarter.com allow for you to get funding from ordinary consumers. You can sell your products in advance in exchange for money upfront. If you have a really good idea, this is a very feasible option. Thousands of startup owners have been successful at funding their businesses using these methods.
In order to be successful at crowdfunding, you have to be able to offer your prospective clients a truly valuable product. Many startup owners effectively ask for donations through these platforms – people don’t want to give money if they’re not receiving any true value in return. Create an awesome product, market it well, and make it affordable – that’s the key to crowdfunding.
There are tons of unique ways to fund your business – it depends what type of company you run and what types of products you produce. The key to successful funding campaigns is having a good idea, and selling it to your potential investors or lenders. People need to understand that you have an actual business plan – no one wants to fund someone’s unsuccessful dream. Once you are able to secure funding for one business and build up a solid business credit score, you will find that there are plenty of opportunities to attain finance and investment. Getting your first piece funding is the hardest step on the ladder.
Jason is a Senior Author for SBL. He has been working with small business owners like you for the past ten years. He graduated with an MBA and began a career as an independent financial consultant for small businesses in his state.