Starting your own business has its ups and downs, and any business owner will tell you it’s not for the faint of heart. But here you are with this incredible, billion-dollar idea, and all that’s on your mind is, “How can I get started?” The short answer is that you probably need some money.
Website design alone can cost thousands. And depending on the type of company you want to launch, you may need to hire an entire team. Whether you’ve come up with a potentially groundbreaking new app or want to launch your apparel line, you probably need some cash to get started.
So, how do you go about getting funding for your business idea? Well, there are a few different ways to secure cash flow, starting with digging into your finances.
1. Get started with bootstrapping: — Business owners refer to starting a company from scratch with nothing more than their personal savings and money from the first few sales as “bootstrapping.”It involves very little, if any, funding from external sources.
Bootstrapping includes pulling from your savings account and using credit cards and any home equity lines you may have. Bootstrapping is excellent for many reasons, but it’s mainly a way to kick off your business plans without drowning yourself in loan debt before your business even has a chance to get off the ground.
In addition, you aren’t giving away any equity just yet, which is a massive plus for any business owner. If you’re looking to scale quickly, you will probably need to bring in outside funding sources.
2. Family, friends, and crowdsourcing: Reaching out to family and friends for money can be daunting, but their support can get you started. You may not be able to secure a ton of funding this way, but every little bit helps when you’re stuck.
But before you ask your loved ones for help, you should have a business plan ready. You should be able to explain to everyone what you’re looking to accomplish, how you’ll be profitable, and whether you are asking them for a loan, an investment, or a gift.
Crowdsourcing, or crowdfunding, allows you to tap into the power of the internet to raise money for your small business. Family, friends, and strangers can give cash donations to your cause, often in exchange for company assets in the form of rewards or equity. It also helps you get your idea in front of a broader group of potential investors while creating a buzz among potential customers.
3. Look to your community: For those looking to launch a small business, check out your local small-business development center.
These organizations can help connect you with other entrepreneurs for networking, help you determine what types of loans and funding you may qualify for, and allow you to apply. In addition, many large cities have programs dedicated to bringing businesses into the local community.
4. Bank loans: Potentially hefty interest rates keep many business owners from turning to a bank for a loan, and that’s perfectly understandable. But many large banks, such as Bank of America and Wells Fargo, have programs dedicated to small-business owners.
First, you’ll need to have a business plan outlining how you’ll use the funds so the bank can assess the risk involved in lending to your business. But once you have the funding, you’ll have more flexibility in changing your plans without any intervention from the bank. All they care about is that you repay the loan.
A bank loan’s main advantage is that you retain total equity while receiving a nice chunk of change to get your business idea up and running. But you need to pay back the loan plus interest, or you can leave yourself vulnerable to bankruptcy.
5. Microfinancing options: Banks aren’t exactly known for their empathy and understanding of hardships. For instance, if you’ve been deemed high-risk and turned down by Bank of America due to a poor credit score or track record, your reasons for being in a particular financial situation will likely fall on deaf ears.
But small-scale entrepreneurs can access capital through microfinance, which is a perfect option for people with bad credit scores. Microfinance institutions, such as non-banking financial institutions, are more likely to lend money to people who traditional banks consider to be high-risk.These loans generally are modest in size, hence the name “microfinance.”
6. Seek out angel investors: Angel investors are typically established business professionals with high net worths looking to invest in promising startups.
You can start your hunt for an angel investor by asking other entrepreneurs in your network or checking out the Angel Capital Association, which boasts over 300 angel investor groups. AngelList Ventures is another source for connecting entrepreneurs with interested investors and has helped over a thousand startups secure funding.
The challenge here is convincing angel investors that your business is worth their money. There are many startups out there, and they all promise that their businesses will be huge. But if you can find an angel investor, you’re not just getting their cash.
An angel investor can also provide valuable mentorship and insights. Most have either launched successful businesses or have worked with other startups and have the experience you may lack.
7. VC funding:
Venture capital (VC) is a type of equity financing for businesses and new businesses that expect to grow quickly and need a lot of money to keep this growth going.If you’re looking for funding of at least $1 million, you’ll need to turn to venture capital.
VCs typically invest in several different companies, meaning yours will have to stand out in the crowd. They also look for a high return on their investment, so you should have an exit strategy in mind. And to even be considered, your business model needs to be airtight and ready to scale.
When looking for a loan or funding, you must do your homework and look into all of your options.A combination of funding options may be best for you, but the most important thing here is to choose an option that works best for your unique situation.