12 ways of funding for your startup business
When you have a viable business plan for your start-up and you know how much funding assistance you need, and what it will be used for, it is time to start looking for investors.
According to a recent study, over 94% of new businesses fail during the first year of operation. Lack of funding turns to be one of the common reasons. Money is the bloodline of any business. The long painstaking yet exciting journey from the idea to revenue-generating business needs a fuel named capital. That’s why, at almost every stage of the business, entrepreneurs find themselves asking — How do I finance my startup?
Though, there are multiple ways to get this done. But I have compiled a guide on 10 financing techniques and what you should know when pursuing them.
- Crowdfunding — Crowdfunding is one of the newer ways of funding a startup that has been gaining a lot of popularity lately. It’s like taking a loan, pre-order, contribution, or investments from more than one person at the same time.
- Bootstrapping — Self-funding, also known as bootstrapping, is an effective way of startup financing, especially when you are just starting your business. First-time entrepreneurs often have trouble getting funding without first showing some traction and a plan for potential success. You can invest from your own savings or can get your family and friends to contribute. This will be easy to raise due to fewer formalities/compliances, plus fewer costs of raising. In most situations, family and friends are flexible with the interest rate.
- Angel Investments — You can find that angel investor who not only will invest in your start-up, but will also sit on your shoulder, offering mentorship, solid advice, and provide access to their network of contacts. Places to start include Funded.com, Angel Capital Association, and Angel Investment Network, all of which have thousands of angel investors who provide information on the type of investments they are seeking.
- Venture Capitals — A venture capital investment may be appropriate for small businesses that are beyond the startup phase and already generating revenues. Fast-growth companies like Flipkart, Uber, etc with an exit strategy already in place can gain up to tens of millions of dollars that can be used to invest, network and grow their company quickly.
- Get a bank loan — Lending standards have gotten much stricter, but banks such as J.P. Morgan Chase and Bank of America have earmarked additional funds for small business lending. So why not apply?
- Leverage the benefit of startup launching platforms — Companies have launched specific platforms that provide information, research, and assistance with all aspects of getting a business launched, including ways to connect with investors. Companies like Itobuz.com are providing a convenient channel for locating investors in an efficient way.
- Incubators and accelerators — These incubators and accelerators even offer a physical space to set up your office, making it easy to work with you directly. Since space within the same building is also being used by other start-ups, this is a great place to exchange ideas and grow together.
- A loan from NBFC — After a series of funding, a startup can opt for NBFC loans. Like every, loan you need to repay the loan along with interest in the given time frame. The startup along with this could opt for microfinance institutes that can give loans as well. Requirements are limited to get loans from NBFCs and the interest is low. These financial services to those who don’t have access to conventional banking services.
- The help of government programs — Governments around the world, have initiated many government schemes to help startup businesses.
- Winning Contests — There are competitions among many business startups to get funding from the investors. There is also some media coverage to make which advertise this event and creates awareness among people. For this prepare a business plan or build a product and make your project stand out. You can present your idea in person or pitch it through a business plan. We give you a tip to make your plan comprehensive enough to make it worth investing.
- By pledging some of your future earnings — Young, ambitious and willing to make a bet on your future earnings? Consider how Kjerstin Erickson, Saul Garlick and Jon Gosier are trying to raise money. Through an online marketplace called the Thrust Fund, the three have offered up a percentage of their future lifetime earnings in exchange for upfront, undesignated venture funding. Erickson is willing to swap 6 percent of her future lifetime earnings for $600,000. The other two entrepreneurs are each offering 3 percent of future earnings for $300,000.
- Consider Factoring — Finance method — Factoring is a finance method where a company sells its receivables at a discount to get cash up-front. It’s often used by companies with poor credit or by businesses such as apparel manufacturers, which have to fill orders long before they get paid. However, it’s an expensive way to raise funds.