Every new business, big or small, needs access to capital. Funding is the lifeblood of any organization. Whether it’s for acquiring stock, paying rent, rolling out a marketing campaign, or paying your first employee, knowing where you can access start-up financing is a very important element in getting your business off the ground.
It is always exciting to come up with a new business idea. But the problem is when you have to raise funds to support the idea. Remember that simply having the idea is not enough; you must actualize the idea by setting up and funding the business.
Many entrepreneurs turn only to bank loans when they are looking for investments. However, banks are often not the best place to turn if you’re a new business. There are many other options on the table for the motivated entrepreneur with a good business plan. Here are four alternative financing options, other than the bank, that you should look into if you’re taking your first steps in business and need some help with your startup capital.
1. Crowdfunding
Crowdfunding is a form of financing a business that has grown hugely in popularity in recent years. Crowdfunding platforms such as GoFundMe, Crowdfunder, and Crowdcube make it possible to raise large or small amounts of money from a large number of people. In 2015, over $34 billion was raised worldwide through crowdfunding, making it a very successful and very popular form of raising funds. You do not even need to be particularly tech-savvy to use this method either; it’s very straightforward and user-friendly.
The platforms that have sprung up in recent years to help new projects get off the ground have been successful in pulling in millions of users. These users are drawn by the chance to become involved in ventures that may net them a pretty profit in the future. Further yet, some just like the sound of an idea and want to give it their backing. Crowdfunding works by bringing people with funds they want to invest and people who have a great idea together.
2. Angel Investors
Angel investors are usually successful business people who wish to invest their finances in budding entrepreneurs with good ideas that could make a decent profit in the future. If you have seen the popular TV show 'Dragon's Den’, you will be familiar with the concept of angel investment.
It’s not easy to win over an angel investor. For good reason, they want to know that their investment is highly likely to reap healthy profits for them in a relatively short timeframe. In order to successfully win over an angel investor, you need to impress them with your idea, your strategy, your meticulous business plan, your eye for detail, and your clear analysis of what your business needs to be successful.
You will also need to be able to tell them how you are going to achieve your goals and the length of time you need to pay them back. If the angel investor shares your goal and believes in you, they may be willing to put their faith in you and their investment funds — in hopes that you will make them a healthy profit in return.
But — and here’s the crux with angel investors — they will more often than not want more than just a share of your profits. They are highly likely to want a share of your company too. It is obviously up to you to decide just how much — if any — of your business you are willing to give up in return for investment capital and mentorship. It is something you must give careful consideration to before approaching an angel investor as they will expect you to be ready to hand over equity.
3. Venture Capitalism
Venture capital is a type of funding that is available to new and growing businesses, although it is limited and very competitively sought after. A venture capitalist is a person who invests in a business idea by providing it with capital to start-up or expand. The majority of venture capital comes from professionally-managed public or private firms who specialize in funding new and high-risk business ideas — only a few venture capitalists are actually individuals. Usually, in this process, the firm will offer start-up loans to new enterprises in exchange for equity.
It is not always an easy task finding a venture capitalist who is willing to invest in your business idea. This is because they typically like to look for ‘the next big thing’ rather than a small business looking to make modest profits. Sometimes this leads entrepreneurs to a position where they find themselves bending over backward in order to persuade their backer that their idea is bigger than it actually is, which can be risky.
This is usually a short-term investment, and the capitalist will want a return on their investment as quickly as possible. But, if you are lucky enough to find one, it could seriously sort out your small business funding issues.
4. Apply For A Grant
Grants are a great way to finance your startup if you can get your hands on one. Grants are lump sums of money that usually come from the government to help a certain group or sector to develop and grow. Perhaps the most important aspect of grants to note is that they do not need to be paid back. They can be hard to come by, are limited in number, and usually have quite strict application criteria, but if you do qualify, there is nothing to be lost by applying and everything to gain. They are one of the few things in life that look too good to be true, but are every bit as good as they look!
Conclusion
There are many different places you can look to access start-up financing if you don’t have the money available yourself. As with everything, there are benefits and risks attached to each one. So it is worth spending time going through the best options for you and your business before committing to one and discovering it is not the ideal solution for you.
