Different Ways to Fund a Start-Up

in Finance

Different Ways to Fund a Start-Up

You have your business plan ready and you’re ready to start working. But where will you get the capital to do it? Sorting out adequate funding to get a business up and running can be difficult, but not impossible. If you’re not sure of how to fund your start-up, read on for a few ideas.

Bank Loan

When entrepreneurs think about funding, they usually look to the bank to provide them with a loan. Banks will offer a repayment schedule that will depend on the amount of money you borrow. Like most loans, you’ll have to pay it back over a set time with interest. Banks usually ask people to sign surety bonds when they provide business loans, so that they know that the obligee will pay back the loan on the principal’s behalf if they default on the loan.

Crowdfunding

Crowdfunding is a simple way for you to raise funds for your start-up. People can crowdfund everything and anything, from phone apps, to movies, to technological convergence tools. You can learn more about them here.

When you set up a crowdfunding page, you can add images and videos explain your service or product, lay out your business plan, and tell potential funders exactly where their money is going. In return for their pledges, you can offer them rewards, such as merchandise or early bird offers. You can also keep people updated with how your business is going. Different crowdfunding platforms have different rules. When you set your crowdfunding target, some platforms will let you keep the money you raised even if you don’t reach your goal and some will only let you have the money pledged if you do reach your goal. When setting your crowdfunding target, you should factor in all costs, including the fees charged by the crowdfunding platform.

Grants

A grant is money that is given to a start-up to help them build their business. Grant money is usually offered by the government, charities, organisations, or foundations and you won’t be expected to pay it back. When it comes to getting a grant, the grant-awarding body will be very specific on how you use the grant money and they may ask for regular updates. Grants are often distributed to businesses with specific niches or in specific industry sectors, such as businesses ruin by women, building restoration businesses, or environmentally-friendly businesses.

However, you’ll have to compete with other businesses for these grants and even if you apply for more than one, you’re not guaranteed to get it.

Investors

There are two types of investors you should consider—angel investors and venture capital investors. Angel investors will ask for a small share of your business in exchange for providing seed money for your start-up. By going down this route, you’ll still have control over your business as you will have the most shares.

A venture capitalist will provide you with a greater amount of funds in exchange for a larger percentage of shares. Venture capitalists can offer you advice and can bring in valuable industry contacts to help you out, but you should look at a venture capitalist as more of a business partner and you may not have as much control over your company as you would like since you will have fewer or equal shares.

Ask Friends and Family

Try asking your friends and family to support your business endeavours by funding your start-up. Go through your business plan with them so they know what they could be investing in. by asking your family and friends to back you, you’ll get a good idea of whether you have a good idea on your hands by how supportive they are. It’s also a good idea to get some early feedback from people you know.

Save Up

There’s nothing more satisfying than knowing that you are self-sufficient. If you don’t want to seek external funding, then you always have the option of funding your start-up yourself. Many budding entrepreneurs take on other jobs to fund their businesses. There’s no harm in working a 9 to 5 job to get your business started. By being self-reliant, you don’t have to worry about being in debt, keeping investors happy with updates, or funding falling through.

If you think you need to spend more time on setting up your business and going through your business plan, click here for some guidance. Good luck with funding your start-up!


Image Credits: Breakingpic

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