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How to Fund Your Business Startup Costs
One of the most common questions among young or first-time entrepreneurs is how they could fund their startup business costs. Here's a set of tips to manage that. Read ON!
After the euphoria of coming up with a brilliant business idea comes the reality of how to fund your execution plan. Many entrepreneurs don’t have enough saved up or don’t want to risk their nest egg on their business idea. This article will highlight some traditional and unconventional ways to secure capital to fund your new venture.
Bootstrap Your Business
Before we dive into funding sources it’s worthwhile spending a moment on the idea of bootstrapping. The idea of the owner’s sweat equity is nothing new and essentially means to operate as lean as possible. If you don’t have access to capital to launch your business you can bootstrap a lot of tasks like coming up with your own branding or using your home as an office. Once your business gains a bit of traction you can then approach lenders and investors with a proven business model. If you can prove your business case with revenue your odds of securing capital will significantly increase.
Ask Friends & Family
One of the very first sources many entrepreneurs consider is friends and family. It’s much easier to convince someone who knows you to believe in you and your business idea. With that comes great responsibility. Before you start pitching your close circle, consider whether that individual could lose his or her investment should the business fail and how your relationship would be impacted.
Get a Bank Loan
If you don’t have a rich uncle or don’t want to travel down the friends and family path you can always turn to a bank loan. For new businesses and first-time entrepreneurs, these business loans are really just personal loans backed by one of your assets. Banks don’t typically lend you money based on just an idea and business plan. To secure their investment they want to see your income and assets. If you are willing to put your house up for collateral or keep your daytime job while you launch your business this might be an option.
Leverage Your Credit Cards
Credit cards are one of the most common ways entrepreneurs fund their startup costs these days. The reason is simple, it’s quick and easy. You can access the funds right away and don’t need to pitch anybody or get approval. Credit cards work well for small businesses that don’t require a lot of funding to get off the ground. It’s important to remember that you are taking on personal debt. Can you repay these balances should your business fail?
Pitch Angel Investors
If you don’t want to or can’t take on personal debt then you might want to look towards investors. Depending on your capital requirements this might be your only option anyway. Angel investors are typically successful entrepreneurs themselves who are looking to invest in local businesses to beat market returns. Taking on an investor means you are giving up equity and sometimes even control. Having said that you don’t only gain access to funds but a knowledgeable business partner. Before you approach any angel investors make sure you have perfected your pitch and developed a well-researched business plan and presentation deck. SiMUS backed up by Veteran entrepreneur Sujit Lalwani would be able to take you through this process and prepare you ready for your pitches and also facilitate some connections in the ecosystem that might take interest in your venture to help avoid cold calling from your end to investment groups.
Secure Venture Capital
If your ambitious business goals require millions of dollars then venture capital might be your only bet. Venture capitalists are well connected and typically specialized in a few industries. To start your venture capital raise-up journey identify all of the local funds in your area and then narrow them down by industry focus. You might also have to be prepared to travel to find the right fund for your venture. Securing financing from venture capitalists is no easy feat and often takes months or more of continuous pitching. If you are successful in getting a deal approved you’ll be plugged into a large network of experts with access to lots of capital that could fund you from seed stage all the way to Series D and exit.
Launch a Crowdfunding Campaign
Crowdfunding is a neat way to secure capital for your business if the debt or traditional investor routes aren’t an option for you. The idea is that many small contributions will help you reach your goal. There are lots of success stories of entrepreneurs who have gotten their business off the ground this way. You have the option to give up equity for each contribution or offer a reward such as product, service or recognition in exchange. It’s easy to sign up for one of these crowdfunding platforms online so it’s worth looking into.
Government Grants & Loans
As an entrepreneur, it’s time well spent to understand your local government grant and loan programs. The government supports local businesses with these initiatives to foster new innovation, business, and job creation. Depending on your business and personal background you might qualify for an interest-free loan, payroll tax credits, or even grants. In addition to local programs, there are also federal funds available you might be able to access. Whether you already sourced funding through another source or not, every entrepreneur should take advantage of what’s available through the government.
Many new businesses fail early on or never get off the ground because they aren’t sufficiently funded. Having said that just throwing money at the problem isn’t the answer either. Adopting bootstrapping habits to build your business is good practice. The further along your business is on its journey the easier it becomes to raise capital. The funding sources listed above are a good starting point. Before you reach out to any lenders or investors make sure you perfect your pitch material and business plan. Also take care to keep your family and business finances separate by hiring personal financial advisors from firms like HappyWise Financial Planning. It helps you have clear mind because of structured finances for all your high priority goals of life.
Scott Smith I’m a freelance graphic designer with a degree in psychology. I’m passionate about design, entrepreneurship, marketing, and how it’s all tied to behavioral psychology. When I’m not designing or writing I like to travel and surf.
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Any facts, figures or references stated here are made by the author & don't reflect the endorsement of iU at all times unless otherwise drafted by official staff at iU. This article was first published here on 21st June 2020.