Entrepreneurs would agree that funding is one of the major challenges when starting a business. Running your business involves costs and when your business is off the ground, you will face the challenge of scaling and sustaining it.
There are a number of ways you can seek funding for your business, some more traditional than others.
1. BOOTSTRAPPING
This means building your business from the ground up with nothing but personal savings, and with luck, the cash coming in from the first sales.
Provided that your business isn’t operating in an industry that requires lots of startup capital, like manufacturing or transportation, you can potentially fund your own venture—and it may be more feasible than you think
Bootstrapping could be daunting but if you manage the situation, it would make investors more willing to partner with you in future. Also, you wouldn’t have extensive loans and monthly payments that can weigh you down if you decide to invest in your business with your personal resources.
2. CROWDFUNDING
Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business venture.
Crowdfunding makes use of the easy accessibility of vast networks of people through social media and crowdfunding websites to bring investors and entrepreneurs together. Crowdfunding gives you the opportunity to connect with like-minded people who you wouldn’t normally be able to engage. You can gauge interest in your product or service and understand what’s resonating with people and what’s not. This shows you how to improve your product and your pitch.
You will be required to set up a campaign and name a target amount of money you want to raise, as well as create perks for donors who pledge a certain amount of money, such as early access to products, discounts, and so on. You then raise money for the campaign over a specified time. Some websites you would use for this financing method are Kickstarter, GoFundMe, Indiegogo, Crowdrise, and many others.
3. LOANS
Loans can be gotten from banks or other financial institutions. This method is one of the oldest, although many do not prefer it.
To get loans, you might be required to show that you’ve started gaining traction and making money (and that a loan would help you earn even more). You may also need to present a well-detailed business plan. Your business’ financial projections give lenders the details needed to be sure of the income you would have to repay loans, including interests. Usually, bank loans do have legal regulations, which will have to be followed accordingly.
4. FAMILY AND FRIENDS
This is a viable option for many. Ensure you do not get carried away by the fact that these are people close to you or your pals. You must make sure that everything is well documented.
Make sure to agree on what form the funding will take. They could be a loan or equity in your company. If the money is a loan, agree to a repayment plan.
Borrowing from friends and family comes with its own set of risks. If the venture fails, or if it takes much longer than anticipated to repay the loan, your relationships can suffer.
Before you ask your friends and family for money, you should have a business plan ready. This way, you can explain to them exactly what you are doing and how you will make money. Also, ensure that you have all terms of the loan written out. That includes how much you are getting, the amount of interest charged, and the terms and deadline of repayment.
5. ANGEL INVESTORS
An angel investor is an individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. Angel investors usually give support to start-ups at the initial moments and when most investors are not prepared to back them.
Angel investors can be a good source of capital for your business. First, you must have a solid business plan put together and a great pitch ready. You have to capture their attention with enthusiasm and promising data points about your company’s current situation and future potential.
Not only can angel investors offer financing to get your business off the ground, but some may also choose to guide you. They may also leverage their existing contacts within an industry to open doors for your business.
