With around 4 million new businesses starting every year, you might be looking to join the ranks and launch your own business as well. The main hold-up for most people when they start a new business is securing funds to get their business off the ground. Thankfully, there are ways to get the capital you need to share your idea with the world.
We have put together this guide to share the best ways to get funds for your start-up business idea.
Read on to see what your options are.
Loans
One of the most common ways to fund a new business is via a loan. There are instant loans now widely available for those with great credit and there are options for those with less-than-perfect credit as well. Keep in mind that loans are usually a better option for people with good or great credit.
A bonus of securing a loan is that you won’t have to give up any equity in your company and you will also build your credit in the process.
There are also small business loans available through the U.S. Small Business Administration. The SBA also offers smaller loans called microloans. These are loan amounts for anything less than $50,000 available for any kind of business idea including startups, so you don’t have to be an established company.
The best way to secure an SBA loan is to do your homework ahead of time. Create an expense sheet, a business plan, and projections for the next couple of years. Doing this ahead of time will make it easier to show that you are serious and will also help you learn how much money you should ask for.
Self-Funding
Another option is to bootstrap your business or fund it yourself. You can either use your 401(k), take money out of your savings, or you can ask friends and family for capital to fund your idea. The pro of self-funding is that you will also have complete control over your business once it launches.
Keep in mind that all the risk will be on your shoulders if you opt for self-funding. This means that if you tap into your retirement early, you will more than likely have penalties and fees to pay, so if your business fails then you can ruin your ability to retire on time. These are decisions that you have to make carefully to avoid any regrets in the future.
You can also use credit cards to fund your idea if you have cards with a large amount of money. If you have good credit, you can also look into applying for credit cards with 0% interest so that you don’t have to pay back too much money in interest.
Investors
Another way to fund your business idea is to find investors that will give you money in exchange for a percentage of the company. They would be part owners and they might also ask for other stipulations in exchange for giving you the money.
Some might not ask for ownership, but they might ask for a high percentage to be paid back for fronting the money and taking the risk. At the bare minimum, almost any investor will ask for a seat on the board of directors.
The best way to get venture capital funding is to find an investor either through angel investors or venture capital firms. If you choose to go through a firm, make sure that they are reputable and have experience working with startups.
Then, you will have to share your business plan to make sure that it meets their investing criteria. If they opt to invest make sure you work out the terms. You don’t want to settle and agree on something that won’t make sense for you financially.
For example, giving up almost all ownership of your company would not make sense in the long run.
Crowdfunding
You can also choose to fund your idea via crowdfunding. This is when people will receive a gift from you as a thank you for their contribution. The gifts can be anything from products to perks like meeting the business owner or having their name on pamphlets or credits, etc.
Crowdfunding has become really popular in recent years because thanks to the internet it is easy to spread the word about your idea. It is also popular because the risk for business owners is very low. Even if your idea were to fail, you do not have an obligation to pay any of the money back to those that made contributions.
Make sure that if you use a crowdfunding platform, you read the fine print. You need to be aware of any legal obligations with the platform.
There is also the option to give contributors equity in your company through equity crowdfunding. When you have a promising business idea, some people are willing to give you money, anticipating that you will have returns in the future and you give them a piece of the company.
Contests
This is typically the least popular way to fund a new business, but it might work for your specific idea. There are quite a few major corporations out there that offer contests to entrepreneurs to share their ideas. If they feel that your idea is worth it, they will invest in it.
Usually, these contests are pretty intense because the competition is high. You have to be ready to bring your A+ game if you opt to enter a contest.
Time to Choose the Best Option for Your New Business
Now that you have our list of ways to secure funds for your new business idea, it’s time to make a decision on the best option for you. Some entrepreneurs opt for a combination of funding options if they see that one option is limited to only a certain amount of money.
Make sure that the funding option you opt for leaves you feeling comfortable and confident enough to focus on making your business idea successful.