No matter how brilliant your business idea is, being able to secure enough capital to launch and expand the company is a crucial component of startup success. Putting all your eggs in one basket is not a good business strategy. Diversifying your financing sources gives you a better chance of getting the appropriate financing that meets your needs. There are other possibilities than using your money or borrowing from friends and family when starting a new business. In this article, we’ll discuss financing options for startups and tips on getting them. Let’s get started!
Top 6 financing options for Startups
Crowdfunding is a form of fundraising where a firm solicits donations from the public in exchange for business stock. This is one of the easiest ways for Startups to generate funds. It entails a private company asking many people for small contributions. Supporters will have equity in your company in exchange for their investment, but with lesser liquidity than they would with publicly traded equities. In comparison to IPOs, crowdfunding regulations are also more flexible.
- Equity crowdfunding: Here, investors receive the right to share sales or profits from a specific product in exchange for their investment.
- Debt Crowdfunding: This is when investors lend money to businesses at relatively high-interest rates while reducing their total lending risk by distributing a large sum of cash in various small loans.
- Donation/reward-based crowdfunding: This is when a business establishes a fundraising goal and solicits donations in exchange for a token for the ultimate good or service to be produced.
How to get crowdfunding
Here are some of the steps to take when you want to crowdfund:
- See if your business idea is appropriate for crowdfunding.
- Choose a crowdfunding type.
- Choose a crowdfunding platform.
- Prepare your crowdfunding campaign page.
- Create a promotion strategy.
- Keep moving through the campaign.
- Fulfil your commitments.
Another common financing options for startups is loans. Note the fact that every lender provides a different set of benefits, whether it’s individualized service or tailored repayment. It makes recommended to compare lenders to choose the one that best suits your requirements.
In general, startups find it more challenging to get loans than more established companies. It is likely for business owners to get approved for loans if they have a strong business plan and a decent credit score. With a good business plan, you can source out loans.
How to get a loan
- Prepare your business plan.
- Calculate the amount you need.
- Write out the available loan options.
- Compare the repayment terms.
- Seek the advice of a financial adviser.
- Pick out the best loan option.
- Apply for the loan.
3. Grants and subsidies
It is pretty challenging to bring innovations to light, so government agencies provide aid to startup companies. You can access this funding to help cover expenses such as research and development, salaries, marketing, equipment and productivity improvement.
A grant refers to a sum of money granted to your company on the condition that you don’t have to pay it back. By the terms of the grant, you are legally required to use it; otherwise, you may be required to reimburse it. Also, it is customary to acquire additional financing from a government source after receiving support from that source in the past if you fulfil the conditions of the program.
How to get grants
- Explore the grants available for new businesses
- Discuss with the grant bodies
- Read the grant objectives to see if it suits your business
- Prepare a great business plan
- Apply for the grant
4. Venture capital
This funding source is not available to all entrepreneurs. Venture capitalists seek technology-driven businesses and companies with high-growth potential in tech sectors such as information technology, biotechnology, and communications.
Venture capitalists take an equity position in the company to help it carry out a promising but highly risky project. It involves giving up some ownership or equity in your business to a third party. These capitalists also expect a high return on their investment, generated when they start selling shares to the public. It would be best to look for investors with relevant experience and knowledge to your business.
How to apply for venture capital funding
- Find out more about early-stage venture finance.
- Find out if your business is prepared to apply for Venture capital funding.
- Create a presentation and a pitch deck.
- Discover the ideal VC to finance your company.
- Go through the stated terms and conditions: Funding section, purpose section and liquidation & exit section.
- Complete due diligence and seal the deal!
4. Angel financing
Angel investors invest in startup businesses in exchange for a share of the company’s equity. Well-known success stories like Uber, WhatsApp, and Facebook have encouraged angel investors to place several bets in the expectation of receiving valuable returns.
How to seek Angel financing
- Create your business plan to map the main goals, milestones, financial prospects, tactics and strategy.
- Prepare an executive summary or one-page pitch of your business plan.
- Look for potential angels. You can do this by researching the angels available in your state.
- Research your prospects in-depth
- Secure an experienced attorney to help secure your investment deals.
5. Small business credit cards
Note that this type of finding is not available in every country. Many credit card companies offer unique incentives, such as cash-back rewards, airline miles points, and other perks, to the small business sector. Some issuers demand that the card be connected to the owner’s credit score, credit history, and ownership guarantee. Naturally, any defaults or late payments on the company credit card would have an impact on your credit score.
As a startup, you most certainly have an abundance of ideas and passion for your new business. However, you are more likely to lack funding. This is why you need to source funds from other people. This may sound difficult. Don’t fret! All you have to do is find the best financing options for startups and start that business journey now!