You have a great concept. You’ve developed your business plan. Everything is set, except for one thing. Funds!
Funding your start-up
There are several ways to fund a start-up that involve varying degrees of risk and effort. When choosing a path, it is important to know your options and evaluate which one is most suited to your needs and tolerance for risk.
To help you get started, here are eight possible sources of capital to fund a start-up business.
Fund it yourself
Most businesses , at least in the beginning, are self-financed. This may involve using your savings, borrowing against a retirement account, or taking out a home-equity loan. This is a good thing if your venture succeeds, as you retain all of the ownership. But if things don’t go so well, you must consider and weigh the risks you’re taking.
Friends and family
People closest to you may be a good source of initial start-up funding. After all, they already know you, your background, and your integrity. They may be less concerned about your business plan and more willing to invest or lend based on the strength of your character.
But there are risks that are different than from other funding sources. Personal relationships can be at stake if problems or misunderstandings arise.
Initiate a crowd-funding campaign
In crowd-funding campaigns, anyone can make online pledges to help fund your start-up. This usually involves pre-ordering a product, or receiving rewards. This is an innovative way to fund a smaller start-up.
Some of the top crowd-funding sites to look into include Peerbackers and Kickstarter.
Join a start-up incubator group
What is an incubator group? An incubator group is a start-up accelerator often associated with universities or large organizations. Their purpose is to spur innovation. Most provide access to resources such as office space, but some also provide seed funding.
Apply for a small business grant
There are lots of untapped government grants out there. Seek them out and you could potentially walk away with a safe and reliable source of money for your busines.
A good place to start looking for small business grants is the Bank of Industry (BOI).
Apply for a line of credit or loan
If your tolerance for risk is low, talk to your bank or credit union about applying for a low-fee line of credit or personal loan.
Keep in mind, though, you will have to make monthly payments right from the start of the business.
Seek help from angel investors
Most cities have groups of high-net-worth individuals who are looking to invest in interesting business opportunities in their communities. They often want to see at least some track record of success, but some will entertain start-ups provided you have a bankable business plan .
The downside is that you may be giving up a considerable stake—often 10 to 50 percent—of your company for the angel funding. On the other hand, you may gain valuable expertise and contacts from someone who is motivated to help your venture succeed.
In the United States of America, organisations such as Overland Park, Kansas-based Angel Capital Association, offers a list of more than 12,000 accredited angel investors.
8. Go after venture capital investors
Venture capital investors are professional investors who look for big ideas. For the majority of new start-ups, this isn’t a viable alternative, as VCs fund only about one or two percent of all business plans they review. But for those with the right combination of concept and team resumes – usually worth a few millions and supported by a team of proven individuals – they can be a great resource. VCs can scale capital needs quickly for fast-growing companies.
9. Cooperative associations are also a good way to go if you are a member, you can apply for a loan. As a member you are entitled to get double of your savings and this can come handy as parts of the funds to support your new venture.
One Critical Piece of Advice
Whatever path you choose to take to finance your business, it’s critical that you have a professional and well articulated business plan.