Could Financing Be the Alternative for Your Startup Business?
There are more entrepreneurs than ever today, and markets across the world are tightly connected. With open borders and free trade, it’s possible to start a business that caters to the needs of a demand on the other side of the continent or even the planet. The internet has also made things a lot easier with online purchases and digital marketing.
It’s easier than ever to start your own business, and it’s up to people with a vision to find a gap in the market for their products. Still, it’s not only about having a good business strategy and a solid idea.
You also need to find the right financing model for your business. No matter what kind of company we are talking about, you need the funds to get things going. If you don’t have enough money to start something on your own, don’t worry. There are many startup business financing options.
The trick is to find the one that is most suitable for your situation.
Start a Crowdfunding Campaign
Crowdfunding one of the newest options, but if done correctly, it can quickly help you finance your startup. It refers to raising funds via crowdfunding websites where you can get donations from a large number of people. Apart from helping you gather the necessary funds, you can simultaneously promote your services or products.
First, you will have to choose the crowdfunding platform. Some of the best ones are:
All of them have their differences and advantages. However, it always comes down to setting up a profile, describing the startup you have in mind, and defining how much money you need. People that are interested in your idea can donate while getting a reward in return.
It could be a pre-launch product, discounts, profit share, equity, and so on. The best option is a reward-based campaign. This way, you won’t give up your profits or ownership and simply give some of your products for free.
It’s essential to create a good story for your campaign. It can be focused on the company, your services, or products.
This type of financing involves finding “Angel Investors” who have the capital and are willing to invest in companies that are just starting up. These are usually retired CEOs or wealthy people who like to make business investments to earn more money or support good ideas.
On average, Angel investors will provide from $20k and up to $100k. However, in exchange for their investment, Angels usually want to play a part in company management. They want a place on the board of directors and demand transparency in business operations.
There are various organizations where you can find these kinds of investors. In most cases, they are anonymous and don’t want their information to be shared with the public. Essentially, you will be getting a business partner.
That’s why it’s crucial to meet up and talk about your ideas, thoughts, and goals for the company. You need to be transparent with each other and talk about your intentions. It’s the only way this kind of arrangement will work.
Venture Capital Firms
These firms work full-time on investing in new and old companies. They offer financial support in return for shareholding. Entrepreneurs simply have to make a good pitch for their startup ideas and hope they get financial support.
Not only can you potentially get financing for your business, but you will also gain expertise and advice from experienced business investors. Still, venture capital firms almost exclusively chase profits. They are more pragmatic in their approach and focus on numbers, market trends, and profitability.
If you are emotional towards your ideas and don’t have a realistic timeline for your startup to become profitable, chances are they won’t like it. There isn’t much leeway with venture capital firms, as they look for startups that have the potential to grow fast with low risks.
Various government agencies in different countries offer to finance for starting businesses. They come in the form of subsidies or grants, and you need to check which ones are available for your business. Your terms will be depending on your government and local government entities.
However, there are some general criteria entrepreneurs need to meet:
It can be challenging to get a government-backed grant. Competition can be fierce, and there are many applicants you will fight with to get financing. In most cases, you will be required to have at least half of the funds that you are being given and sometimes even 100%.
In your application, you will need to showcase:
- The importance of your startup
- How you will approach your business model
- Your expertise and business assessment
- Why you need a grant
- Business plan
- Project description
- Key selling points of your business
- Starting costs and future projections
- Your business credentials including background and experience
- Application forms
Startup Bank Loans
One of the most common startup business financing options. One of the main reasons for this because they are the easiest to get. But the question is, at what costs? Banks give a lot of flexible options, but they might give you huge interests, require a mortgage, or collaterals.
That’s why you need to have a good credit score with a flawless track record. At the same time, establish a comprehensive business plan that will showcase the potential of your ideas. The better you are at convincing a bank that you are a reliable borrower, the better terms you will get.
It’s generally a good idea to shop around and pitch your ideas to several banks. See what kind of offers you will get and choose the best one. In general, look for more breathing room before you start repaying the loan.
For example, if your financial analysis says that your business will start profiting after a year and a half, look for a loan that you will have to start repaying after two years. Startups are hard, and they require a lot of work, you never know when something could set you back.
These are the most common startup business financing options. All of them can be customized and come in different forms. Make sure to go over them thoroughly after doing financial analysis and setting up a business plan. This is how you can find the best option that aligns with your business model.