You got a billion dollar business idea and to turn it into reality you need a team, a website, an office space, some equipment and enough cash to pay for them. But no matter how promising your idea is, arranging funds for your business always remains the hardest part. For most of the entrepreneurs, investing personal savings is never enough and their business requires some more funding to survive the difficult early days. A recent study revealed that more than 94% of startups fail during the first years of operation and lack of funding remains the most common reason. To take your business from ideation to revenue generation funds act as the most important fuel and at every stage the entrepreneur needs to think how they are going to arrange finance. However, you don’t have to worry though, because even if getting funds is a tough job, there are a number of options and strategies that can pave your way. Also, these days, the support for small business owners is growing, with new funding options opening up to back the business ideas with stable investment.
Take a look at the funding options you can consider for your business:
Bootstrapping, or self funding, is a good option for many entrepreneurs, especially for the new business owners who are required to show some traction to attract investors. You can invest from your personal savings and the procedure will also be easy as there won’t be too many formalities and compliance issues. You can also look for investments from friends and family, who usually lend money at flexible interest rates. Bootstrapping is a good option if your initial funding requirement is not much. Also, investing your personal finance in your own business means you are tied to your business, which is, in turn, considered a good point by the investors at a later stage.
- Angel Investor
An angel investor is an affluent individual with an interest in investing in new startups having great ideas. They also work collectively, in groups, for screening the business proposals before they make an investment. Angel investors have been the starting point for many prominent companies like Yahoo and Google. Apart from capital, they also provide business advice and mentoring. Businesses usually seek angel investors during the initial stages and the investors expect up to 30% equity.
Crowdfunding is a relatively new approach which is gaining enormous popularity lately. For crowdfunding, the entrepreneur puts up the details of his business on a crowdfunding platform, listing their goals, plans and profit making schemes. If people like the idea they agree to pre-order or providing a donation. Anyone can participate in crowdfunding if they genuinely believe in the business idea. The best part of crowdfunding is that it markets your business alongside fundraising. It can also attract venture capitalist, if the company manages to run a great campaign. It’s also important to note that crowdfunding is a competitive place and your business idea needs to be highly convincing to gain funds.
- Venture Capitalists
Venture capitalists are professionals or firms that invest in companies having great potential by pooling money from different sources like large corporations, investment firms, etc. They invest against equity and exit in case of an acquisition. They also provide mentorship and expert advice to the companies. Venture capital is ideal for small businesses that are already generating revenues and are beyond the startup phase. However, there is a downside too. You cannot expect a long term loyalty from venture capitalists and they usually look to recover their money within a short span of time. If your product is taking too long to reach the market, the venture capitalists may not be interested in your business.
- Bank Loans
Bank loans are also a good option for starting a business. You can get two types of financing from banks — working capital loan and funding. Working capital loan is provided for one complete cycle of revenue generating operations whereas in case of funding the bank evaluates the business plan and sanctions the loan. There are various programs under which the banks provide loans to the entrepreneurs.
Many organizations are launching contests these days and are offering investments to the winners, encouraging a lot of entrepreneurs to set up their business. Such contests mostly revolve around preparing a business plan or building a product. Winning such contests can also earn you some media coverage. All you have to do is prepare a unique business plan or product that stands out in the competition to convince people that your idea is a good thing to invest in.
- Incubators and Accelerators
Incubator and accelerator programs are another effective way of getting funds for your business. Incubator programs are like a parent to a child that nurtures a business by providing it training, tools and network to thrive. Accelerator programs help businesses take giant leaps. The duration of incubator and accelerator programs varies and such programs demand time commitment from the entrepreneurs. These programs are helpful for getting good mentorship and earning good connections.
Microfinance is for the businesses that do not qualify for a bank loan or do not have access to conventional banking services. It helps in acquiring funds through small loan amounts and is also a good option for those having bad track record or credit score. Microfinance institutions focus more on promoting financial inclusion and cater people that are at the bottom of the financial pyramid. You don’t need to have assets to get microfinance and the interest ratesare also quite low.
There are a number of options for financing your business but it’s important that you evaluate your circumstances well and choose the right funding option.