There are good and bad ways with how to fund your startup business.
Good ways offer capital so you don’t plummet at runway’s end. Positive funding terms let your business thrive without interference. Bad investments are a burden, with nightmare scenarios like losing control of ownership.
Startup capital isn’t as large an undertaking because of agile operations. With tens of thousands needed before, a few thousand could suffice today. This creates incredible positioning when pitching investors.
Whether you choose to accept funding from an angel investor. Or, decide your capital will come from traditional funnels. Read this guide to discover your options with attracting (and securing) startup funds.
How to Fund Your Startup Business: What’s Needed before the Pitch
In the past, successful business ventures seemed dictated by who you knew.
Banks were reluctant with startup investing because it was too high a risk. One could burden themselves with loans but even then requiring good connections.
It’s on you to remove this burden of a doubt from investors — do the following:
1. Perfect the Pitch’s Timing
Knowing when to seek funding such as hiring staff or buying more stock for the demanding upkeep. Timing should before the startup begins “bleeding out”.
2. Have a Plan (for Everything)
Detailing how your business intends to spend capital and ways it’s repaid. A budget worksheet and contracting will cement the trajectory.
3. Choose Your Collateral
What you’re willing to give up if the startup tanks. This could include business property, inventory, or intellectual property rights.
4. Know the Revenue and Expenses
What the business makes and spends, reassuring investors are repaid on time. This could include future outlook but also take in monetization suggestions from investors.
5. Secure Your Legacy
Is your business mature enough to take on investments? Or, are you (the proprietor) at an age deemed trustworthy with a great debt-to-credit ratio.
Funding Your Start-Up: Tips to Attract the Right Investors and Capital Injections
Every funding potential presents its own form of pros and cons. These items include how the funding gets secured to stipulations on how you spend its loans.
Let’s explore your options with funding your startup:
1. Self Financed (Savings)
Thousands of businesses start from personal savings. This places a larger burden on yourself but presents total control. Good budgeting and planning are the backbones of launching through self-funding.
Use barriers as a challenge such as trimming features that’ll cause project creep. This refines your goals, creating a better startup budget. Then, put away money or tap savings to realize your startup dreams.
2. Self Financed (Credit Cards)
It’s not ideal but credit cards can give ample funding if you have a great credit score. Many cards have 0% APR for the 1st year, giving a solid runway to explore your ideas before expected payments.
3. Family Contributions
Treat your family as investors:
- Create a strong business plan
- Gather and present your ideas
- Draft ownership and funding contracts
The family could add capital several ways like savings and loans. Or, equity by helping with operations on-location. A family could include close friends, too.
Tap the power of the Net through crowdfunding platforms like:
Make crowdfunding a labor of love, keeping patrons up-to-date and hyped. The campaign could attract interest from media and investors, too!
5. Small Business Loans (Bank & Govt)
Banks will scrutinize your personal and startup’s financial history. The banks look for items like positive cash flow and potential collateral.
What type of capital can you get?
- SBA loans
- Term loans
- Lines of credit
The Small Business Administration (SBA) offers microloans to qualifying individuals. Their process looks for the same qualifiers as banks. Approach these opportunities after your first year with financial records.
6. Small Business Loans (Microlenders)
Microlenders and P2P funding are great for those with excellent credit and collateral. You can find industry-focused organizations like commercial construction lenders. Or, those dedicated to empowering businesses targeting economic status or location.
Popular microlending platforms include:
- Lending Club
You’ll submit an application detailing finances, income, and operations. The loans have different stipulations like high interest to partial ownership.
7. Venture Capital
Venture capital firms wait for startups to mature before investing. VCs are somewhat conservative in that they invest in whole markets. Yet, this option arises if you show dramatic growth and you’ve piqued their interest.
Check into The National Venture Capital Association for helpful details and contacts. Select a few VC firms and make the introduction — pitching the idea.
8. Angel Investors
Angel investors are individuals with capital to go around. They seek promising returns and stipulate startup equity in exchange for funding.
Explore angel investments through:
Otherwise, connect through the Angel Capital Association. The ACA includes thousands of angel investors and groups to explore. Bring your best pitch and make connections to maximize your funding goals.
9. Incubators and Accelerators
Incubators and accelerators are like internships (in a way). A larger company will bring in promising startups, providing workspace and resources. This gives the startup extra runway and connections to reach critical mass.
Popular incubators like YCombinator and TechStars should make your list. The programs tend to include capital injection and connections to outside funding. Your acceptance in these programs provides immense mentorship, too!
10. Contests and Competition
Startup pitch competitions are events letting startups show their products, services, and skills. These competitions involve submitting a business plan and connecting with potential investors. Some events include interesting competitions such as hack-a-thons or product development and launch.
Resources like StartupCompete.co is a fantastic place to explore this option.
Keep It Lean, Keep It Agile: Finale Note about Startup Loans and Funds
Taking on more than you can handle is the incorrect way how to fund your startup business. The intent of loans and funds are to get your business where it needs to be — overcoming the bell curve of adoption.
Too much financial leverage can put you at the will of your lenders and investors. Discover, first, your business goals and its needed operational budget. Only after do you pitch and go after the funding options in this post.
Need more funding guidance for your startup? See our Financial section for all topics related to operating the smart way.