Financing Your Startup is probably the biggest challenge faced by most entrepreneurs. In fact, almost 50% new business fails to cross the five-year mark. There could be many reasons for it but the most important one is lack of funds. The biggest question on every entrepreneur’s mind is where to find the funds to run your operations smoothly.
Even if you have somehow managed to get the initial money to set the ball rolling, finding funds for running your startup and help it to compete against big players in the market requires substantial amount of money. Here are top 10 sources you must explore to give your startup a financial injection it needs.
Whether you are looking for short, mid or long term financing for your new startup, banks are the best place to get it. Make sure you generate enough revenue to repay the bank loan and its interest. Reason why I have ranked bank loans on the top of this list is flexibility. Banks offers you flexible loan payment options, which makes the loan repayment journey easier for young entrepreneurs. Unlike other financial funding options, banks will give you a contract to suit your needs.
If you are lucky enough to live in country with many venture capitalists, then you should focus on pitching your business model in front of them and get your startup funded. These venture capitalists invest institutional money into startups, which has a growth oriented business model. A venture capitalist will only invest in your startup, if he or she sees huge growth potential.
Crowd funding has emerged as a new medium to acquire money for your business. The growing popularity of crowd-funding sites such as Kickstarter has made it a viable option to get you startup off the ground. If you are young, passionate and energetic, you have a much better chance to secure funds for you business through crowd-funding campaigns. Here are some of the amazing statistics on crowd funding to get you started.
Entrepreneurs can also lease their fixed assets to get some cash for their startup. Never put a lot of money down that you have to spend the same amount of cash, as you would have done if you have bought the asset with a down payment. As compared to bank loans, you might have to pay a little extra for leasing but this higher cost is more than justified because you do not have to worry about the down payment.
Your local angel investor group or network can prove to be a great source for getting your startup up and running. That is where your networking skills come into play. To secure funding from angel investors, it is important that you find angels that not only knows your industry well but also share the same interests. You can learn how to attract and convince angel investors to fund your startup from here.
Another trend that has gained momentum in recent years is of startup incubators and accelerators. Companies such as Y Combinator have made great strides, joining hands with big companies, top universities and community development organizations to help startups hit the ground running. These startup incubators provide you with the infrastructure to run your business at an affordable price. Some of these companies even provide you with seed funding.
The biggest downside of external funding is that the investors play a major role in decision-making and you have to share a big chunk of what you earn with them, which kills the main purpose you starting your own business. If you keep your finances in order from day one, you can easily fund your own startup and will not have to depend on external sources for help.
8.Local Economic Development Organizations
If you need a lot of money, then you might have to use multiple sources mentioned on this list in conjunction. For those entrepreneurs, who are taking loan from a bank, local economic development organization offers great benefits. These organizations offer you loans at a fixed or very low interest rate, especially if you have taken a loan from a bank. Additionally, they want ask for repayment warranties and guarantees. Some loans charges you interest for couple of years while others offer you the facility to accrue interest payment for a certain period.
9.Friends and Family
Have you ever considered pitching your business model in front of your friends and family? I am sure you have not done that. If I am correct, then you need to do it now. The best thing about getting friends and family members to fund your business is that they are less demanding. They will ask you a small compensation in return for their investment. You can also consider making your friend or family member your business partner
You might be thinking what does customer had to do with financing your business. It is all about perspective. You have only seen customers as a revenue stream instead of a funding source. Did you know that customers funds more than 40% of entrepreneurs. In his famous book “Bootstrap to Billions”, Dileep Rao emphasized on the same point.
Whether you choose a traditional method such as a bank loan or an unconventional financing source such as customers, entrepreneurs should always be on the lookout for funding options and seek funding from any source they can think of. After reading this article, you might have realized that getting your startup funded is not as difficult as many young entrepreneurs think.
All you have to do is to pitch your business model in an effective manner in front of the right people, convince them that your startup has the potential to make it big and secure your funding. If you have any other business financing option in mind, feel free to share it with us in comments section below.