It seems like more and more startup businesses are appearing every year. In today’s business climate, everyone seems to have an idea for what could be the next industry-changing development. Because the internet allows for easier collaboration than ever before, it’s now more possible than ever to start your own business from scratch. But the biggest question a lot of people have when they think about starting their own business is: How do I fund it?
There are actually quite a few different ways you could potentially fund a new business. They all have their own pros and cons, so it can be difficult to determine what the best method is for your particular business. To help you get started, this article will break down a few of the options for funding a business, so you’ll have more information to work with.
Family or Friends
One of the first places you could consider looking for business funding is the people you know best. Family and friends are likely to believe in your cause, and if you know any friends or family members with some cash to spare, this could be a win-win proposition. You could get the funding you need, and if your business takes off, you could repay the friendly investment. Of course, one of the downsides of this approach is that mixing friendly or familial relationships with financial ones can sometimes get messy. One way to make the arrangement potentially better is to come up with a proposition or terms in writing. Even though you’ll be dealing with friends or family, treating the investment like it’s a real business transaction will help clear up any gray areas that may come up down the line. That way, everyone knows and understands the terms that were agreed upon, so it can minimize future disputes.
You may be surprised to learn that the government may be willing to fund your business under the right circumstances. The federal government gives millions of dollars in grants every year, but it’s likely that your business will need to meet some very specific qualifications in order to be considered for a grant. For example, there are grants for:
- Minority-owned businesses
- Women-owned businesses
- Certain nonprofits or charities
- And plenty of other business models
These grants are often designed in an effort to promote greater diversity in the business field. These are just a couple of examples, but you can visit grants.gov to get a more expansive list of the different types of grants that are offered.
There are a lot of different crowdfunding websites out there, including GoFundMe, Kickstarter, and other less common options. Crowdfunding has a very high ceiling but also a very low floor when it comes to raising funds. Some crowdfunding sites also have different rules regarding how much of the money you get to keep. Some sites may take a flat percentage off the top, while other sites require you to set a fundraising goal and meet that goal before you get to take any money home. If you fail to meet the goal, usually the money will be returned to the investors. You might also need to offer certain perks or packages to donors to incentivize them. The harsh truth of crowdfunding, however, is that unless your concept goes viral, you probably won’t be able to raise a significantly large sum of cash for your business.
If you have a good amount of money in your savings, you could consider pulling from your stash to help fund your business. Obviously, like any of the strategies listed here, this comes with its own set of advantages and disadvantages.
- On the plus side, using your own money means you don’t have to sacrifice any ownership stake in your business.
- But of course, the downside is that you’ll have to eat into your own funds. If you don’t have a particularly robust savings account, this tactic may simply not be a viable option.
Investment firms or wealthy angel investors can be a great way to fund a business, provided you have the connections necessary to pull it off. If you happen to know someone who works at one of these businesses, then that’s a great place to start. But if you don’t have any connections, you’ll need a killer business plan with a lot of research to prove to investors that your business concept is a viable one. Nobody wants to invest in a half-baked business proposal, so make sure to do your work ahead of time if you plan on meeting with large investment firms or venture capital companies.
With the rise of the internet, online lending is a growing industry that could be a great resource if you’re looking to fund a business. There are services that can connect you with a small business lender, and if you meet the lender’s qualifications, you could get a significant chunk of funds using this strategy. Of course, as with any loan, you’ll want to carefully review the terms before agreeing to borrow money. Failing to pay back a loan on time can negatively impact your credit score or your business credit, so make sure you have a strong budget and plan to pay back the loan, should you decide to go this route.
Although banks may be less willing to lend money for potential businesses than online lenders are, it may still be worth a try. Working with a bank might be inconvenient in some ways. For example, you may have to wait a long time at the bank for someone to help you, and they may not offer very competitive terms. Even more likely, they may simply decline to approve you altogether. You’ll definitely need a strong business proposal to increase your odds of getting funding through a bank.
This strategy is not for the risk-averse business owner. Using credit cards to fund your business might seem like a good idea in the short term (and there are success stories of people using this method) but be warned that it could very quickly become damaging. Taking out a large amount of credit card debt puts you at risk of not being able to pay back the debt, which could lead to collections calls, lower credit scores, and other negative consequences. If you need some extra cash for a short-term purchase, a credit card might be the right move, but if you’re thinking about funding an entire business solely on the back of credit card debt, you might want to reconsider. While it’s easy in the short term, it could come back to bite you.
These are just a few of the various possible routes you could go to fund a business. As you can see, there is no one perfect source of business funding. Every option comes with its own benefits and potential downsides. The important thing is to choose a strategy that you are comfortable with, so you don’t end up owing more than you can pay back or damaging relationships along the way. It’s not a decision to be made lightly, so take your time and make the choice that’s best for you and your business.
Luke Loftin is a blog writer and an award-winning indie filmmaker. When he isn’t writing about himself, he specializes in finance and health, blogging about all sorts of topics including credit cards, personal loans, bank accounts, and the digestive system. He currently writes for LeadsMarket among other sites, and his articles are scattered all across the information superhighway. In his spare time, he enjoys listening to country music and watching his favorite sports teams lose. If you want to learn more about him, he doesn’t mind if you search his name on the internet.