It’s not easy to get startup funding for your new business, but you will need working capital to make your business work. This article describes fifteen ways that startup founders can get the funding they need.
What is startup capital?
Startup capital is funding used to finance the early stages of a business venture. This funding can come from a variety of sources, including personal savings, loans from family and friends, credit cards, and small business loans. For many entrepreneurs, raising startup capital is one of the most daunting, but most essential, aspects of starting a brand new business.
You will have challenges at each stage of building your company, and there will be times that you want to quit. You may find yourself applying to W2 jobs in moments of stress and desperation. This is normal.
It’s true, you can quit at anytime, and sometimes quitting is the best option. But if you keep remembering your vision, and if your vision is still important to you, and if you believe that your startup can help to make your vision a reality, then read on to learn about your funding options, decide which funding source will be best for you, and take the next steps to get that money and get your startup business or small business off the ground!
What are the ways that startups receive funding?
Here are fifteen funding options for startups:
ONE: Personal Savings
Personal savings of the business owner is one of the most common sources of funding for startup businesses. If you have saved up money from a previous job or from other sources, you may be able to finance your new business venture with self funding. However, it is important to remember that using your own savings can be risky, as you may not have any funding to fall back on if your business is unsuccessful. Worse, you could face personal financial difficulties.
TWO: Credit Cards
Credit cards can also be used to finance a new business venture. However, credit cards can be a risky option, as high interest rates can quickly add up and put you and your business in debt. It is important to only use credit cards for funding if you are confident that you will be able to quickly repay the debt. No one wants to think about this, but if your business fails, you could be stuck with overwhelming credit card debt that you can’t repay. Once you have financial statements that show you are an established businesses, you can apply for business credit cards.
Crowdfunding is a newer method of funding that has become popular in recent years. Crowdfunding refers to raising money from a large number of people, typically through an online platform. There are a variety of crowdfunding platforms available, each with its own rules and regulations. To be successful in crowdfunding, you will need to have a compelling story and an engaging campaign. StartEngine is an example of a Crowdfunding website used to obtain small business funding. Read Equity Crowdfunding: Everything You Need to Know
FOUR: Incubators and Accelerators
Accelerator and Incubator programs are programs that support entrepreneurs by providing funding, support and networking. Accelerator and Incubator programs are programs that support entrepreneurs by providing funding, support and networking. These programs are sometimes associated with a specific industry, such as technology or healthcare. Companies that are accepted into the program often receive equity financing in exchange for a small stake in their company.
(For more on accelerators and incubators, check out our 10 Best Blockchain Accelerators and Incubators , 14 Best Fintech Accelerators and Incubators, and 5 Best Sports Accelerators and Incubators.)
FIVE: Business Lines of Credit
A startup business line of credit is similar to a personal line of credit in that it allows you to borrow money up to a certain limit. The interest rates on business lines of credit are usually lower than those of credit cards, making them a more affordable option for funding your new business. Some business history and a track record of success is a must in securing a business line of credit from a bank.
SIX: Traditional business Loans
Business loans from banks usually have lower interest rates than other types of loans, making them a more affordable option. However, you will need to have a good credit score, personal tax returns, and a healthy balance sheet in order to qualify for a traditional business loan.
Private and nonprofit lending agencies provide micro loans for entrepreneurs that are not eligible for the normal business loans. These lending institutions generally support minority businesses. Microloans usually have favorable terms, and delivering payments in time can boost credit, making it easier and more convenient.
EIGHT: Business Installment Loans
These loans are quick and easy to qualify for if your credit score is over 640. They usually have a higher interest rate than those of traditional bank loans. They are typically used for short-term funding, and best used when you know that you can pay them back quickly. Interest rates may seem favorable with these online lenders, but there are usually hefty fees that you will need to begin paying back immediately, on a weekly basis. If you are considering a business installment loan, make sure that you will have the cash flow to pay them back on schedule.
NINE: Small-business grants
Startup grants are an option for startup business funding. It is not necessary for you to repay grant money. If you fall into niche groups — like women veterans or minority business owners — it could be easier to secure funding for the project for your company. The U.S. Small Business Administration offers a variety of grant programs for small businesses, including funding for research and development, export promotion, and rural business development. They have two programs that offer grants to small businesses – the Small Business Innovation Research and Small Business Technology Transfer programs.
Read more about 25 Fintech Pitch Decks by VC-Funded Startups.
TEN: Friends and Family
Friends and family funding is another option for funding a startup business. This method of funding refers to borrowing money from friends and family members. It can be a good option if you do not have access to other sources of funding, and personal lenders tend to require less red tape. But it can also be a tricky way to raise money, as you may put your relationships at risk if you are unable to repay the loan.
ELEVEN: SBA Microloan
The Small Business Administration provides many loans that are specific for entrepreneurs. The SBA micro loan provides up to $55,000 to buy furniture, fixtures, equipment, machinery or equipment. The interest rates on SBA loans are typically lower than those of other types of loans, making them a more affordable option for funding your new business, if you can get them.
TWELVE: Venture Capitalists
Venture capitalists are individuals or firms that invest money in high growth companies in exchange for an equity stake in the company, but there are many advantages and disadvantages to venture capital. Many venture capitalists are looking for high-growth potential businesses that can generate a large return on investment. In order to receive funding from a venture capitalist, you will need to have a well-developed business plan, a solid team, and a strong pitch. A track record of success and connections also help! Venture capitalists typically look for a certain kind of business model so they may or may not be right for you. Read more about How to Raise Venture Capital, How to Create a Startup Pitch, How to Create a Venture Capital Pitch Deck, and Venture Capital Advantages and Disadvantages.
For examples of venture capital firms, check out our 15 Pre-Seed Venture Capital Firms who Invest in Early Stage Startups.
THIRTEEN: Angel Investors
Angel investors are individuals who invest their own money in new businesses. Many angel investors are looking for high-growth potential businesses that they can mentor and help grow. Angel investors are a common source of Pre-Seed Funding. In order to receive funding from an angel investor, you will need to have a well-developed business plan, a solid pitch. Networking and making good connections can help you to secure angel investments. Angel investors can be individuals or groups. Learn more about angel investors, the advantages and disadvantages.
You can also get an idea on How Do Angel Investors Work?
FOURTEEN: Equipment loans
Equipment loans are usually provided by banks or other financial institutions and can be used to finance the purchase of necessary equipment, such as computers, office furniture, and vehicles.
I saved my favorite type of startup business funding for last! Bootstrapping might be an excellent option for you to fund your business. Bootstrapping refers to funding your small business by generating revenue through sales. This can be a risky option, as it can be difficult to generate enough revenue to cover all of your expenses. However, it can be a good option for businesses with low overhead costs.
It’s exciting, at first, to have a new business idea. Then the realities set in when you are hit with obstacles like how to raise money for startup costs. But starting your own business is like a puzzle, and if you view funding as one piece in the puzzle, and you have an open mind and a strong desire to make it work, then you will be able to get the working capital that you need to get your business operations off the ground.
There are a variety of funding sources available for startup businesses like professional investors, a line of credit, angel investor groups, equity crowdfunding, your own capital, venture capital, a personal loan.
The best funding source for your business will depend on a number of factors, including the type of business you are starting, your financial projections, how much funding is needed, your credit score, your personal financial situation. It is important to carefully consider all of your options before choosing a funding source for your new business venture.
Raising startup funding won’t be easy. Don’t get discouraged if traditional lenders or venture capital are not right for your startup company. With determination, grit and discipline, you will find the right funding option for you!
Read more about 5 Ways to Get More B2B Sales Fast.
My favorite business book of all time is a quick read (it’s only about 200 pages) and it’s full of actionable advice, with short chapters that make it easy to digest. Rework will show you that many of the traditional rules of starting and running a business are outdated and counterproductive. This book will challenge your assumptions and change the way you think about business. Because there are so many business startup books, and a plethora of information in the startup world, beginning with Rework will help you to decide how you want to approach your entrepreneurial journey.
In this book, Maynard Webb, former COO of Ebay and current Chairman of the Board at Yahoo!, gives advice to startup founders based on his years of experience in the tech industry. He covers topics such as how to raise money, how to build a strong team, how to deal with stress and anxiety, and how to manage your time and energy. Webb’s advice is straightforward and actionable, and his insights are invaluable for any startup founder.
This book is a comprehensive guide to raising money for your startup. Cremades covers everything from what investors are looking for, to how to structure your pitch, to the best way to use crowdfunding platforms. He also provides templates and resources that will save you time and make the fundraising process less daunting.