There are a lot of factors that go into having your own business from needing a website, a technical team, a location to work from, and money to pay your utilities while you embark on your new venture. All of these factors need to be financed.
The majority of small business owners depend on a small amount of funding to get off the ground initially no matter what type of business they are in. There are three main types of startup funding available and each comes with its own benefits and drawbacks. No matter what your business is, one of these three options will be a perfect fit for your business’s needs.
Personally, funding your startup does not mean you need to use your own money to pay for the development of your business or its startup costs. There are other alternative ways to jumpstart your business engine.
Many entrepreneurs use bootstrapping meaning that they get the funds they need in an unconventional way. Earned revenue or existing resources instead of borrowing money is a great approach but being resourceful and creative can be profitable too. The following are popular ways people bootstrapping your business.
- Renting your home: renting out your home is a good way to help fund your startup company. Consider renting out your place or a guest bedroom for a couple times in a month and use the money you earn as an extra source of capital for your business.
- Crowdfunding: crowdfunding is also a good way to help raise money for your new startup. This method consists of you proposing your idea online to an audience of potentially millions of people and if they like the idea they can pledge to support it for a few dollars. You can offer those who have helped you by providing some perk or reward for doing so. This is a great way to boost your growth the first few months after your product has been launched.
Pros and Cons of Bootstrapping
- Pros: bootstrapping can be beneficial because it means you will not need to use a loan or have monthly payments that will need your attention.
- Cons: it can be advantageous to bring in outside sources of funding. When your funds run out or need more, it is important to think about what your next steps will be.
Borrowing funds is a great way to finance your business idea, and it comes with fewer restrictions or terms and conditions. You can consider asking to borrow money from friends and family, but it might feel intimidating to reaching out to them. However, you will never know if you do not ask so give it a shot.
Before you ask friends and family, come up with a detailed business plan so that you can explain exactly what your intentions are with your business and the funds you need. Try to sell your idea to them by making it as attractive as possible, it might entice them to help you out.
Pros and Cons of Borrowing
- Pros: you are not dealing with a regulated financial body so they will be more flexible with the type of arrangement you can make on repaying the loan.
- Cons: this can put a stress on your relationship with the person if something goes wrong and you cannot repay them back.
Loans and Investments
If you decide that you do not want to ask family and friends for help, you can always apply for a bank loan to fund your startup, seek out investors, in the form of angel investment or venture capital funding.
You need to convince banks that your business will be profitable enough and that you will pay them back. Banks see new businesses as risky so they might not be willing to give you the funds you need.
Pros and cons of bank loans
- Pros: it is difficult but not impossible to qualify for a bank loan. You can fund your business this way without giving up any equity.
- Cons: large national banks will have a series of protocols to be followed in regard to small business loans which can be frustrating and time consuming.
Eventually your startup will need more capital to get going and luckily there are outside investors that can help.
Angel investors are a favorable place to start, usually established business professionals with high net worth that are looking to invest in new businesses. Angel investors can invest from $10,000 up to a million dollars or more.
A venture capitalist requires you to have a detailed business plan, but they will also give you large amounts of money. They will invest in several startups and hope that they make money to back their clients back.
Pros and Cons of Investors
- Pros: great way to get access quickly to the cash you need.
- Cons: this type of funding is costly.