You might dream of owning your own business, and you might have the perfect idea for your industry. But starting a business is difficult if you don’t have enough capital. It can take a year or more for the startup to begin turning a profit. So how can you pay for your costs during those tough early days? Here are some ways to fund your startup idea and get the money you need.
1. Business Grants
Your first port of call should be researching what government or charity-funded grants are available to you, as excitedly, this kind of financial assistance doesn’t require repayment.
Grants will also differ depending on where you are based. Ultimately, just ensure the ones you look into are government schemes or offered by approved institutions. That way you know they’re legitimate, and if you qualify you could be in for a nice chunk of funding.
Examples include Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs in the US, which provide funding for research and development for small businesses and start-ups. In Canada, the National Research Council of Canada Industrial Research Assistance Program (NRC-IRAP) provides funding for small and medium-sized enterprises for technology development and commercialization.
Depending on your business model, you might be eligible for a grant. This form of small business funding is particularly attractive as you don’t have to repay the amount, and it is often accompanied by mentoring and other forms of business support.
2. Small Business Loans
Some banks and other lending organizations offer traditional business loans. If you have a plan for your startup, you can apply to get venture capital. Then you’ll pay back the loan once your business begins turning a profit. This method is commonly used by people who can’t borrow venture capital elsewhere. There are several different types of loan that you can consider for your startup.
If you’re opening a small business, you can look into Small Business Administration loans. As long as you meet the qualifications, you can use this program to get financing for your business. If your application is rejected, you can apply again and improve your chances of being accepted. Bank loans are another option. Like when you’re financing a mortgage, you can go to the bank to finance your small business. Some banks have funds that they use exclusively to help small business owners. Look for banks that allow you to talk to a real human being during the application.
The great benefit of this option is that you don’t give shares of your business away to someone else.
3. Equity Funding
Equity finance is the most well-known form of startup funding and involves exchanging capital for ownership rights in your business. Sources of equity financing often come from close business partnerships but can also be sourced from:
- VC funds from venture capital firms
- Angel investors
- Crowdfunding platforms
- The public in the form of an IPO (initial public offering)
With equity financing, there are no fixed repayments to be made. Instead, your equity investors will receive a percentage of your company’s profits, depending on how much stock they were given as part of the initial arrangement.
4. Start a Crowdfunding Campaign
Crowdfunding is a specific form of equity investment where you seek small amounts of funding from lots of different people, usually strangers, and collectively their investment adds up to the amount you need.
If you have an attractive business proposal that forecasts real growth potential, crowdfunding is an excellent way to seek capital. Pitching to peer-to-peer lenders and stakeholders and without any emotional involvemen will also enable you to gauge enthusiasm towards your idea.
Crowdfunders’ expectations for the return on their investment vary, so it’s well worth looking to see what other companies are offering before pitching your idea.
5. Non-dilutive Funding
Some funding sources such as SBIR grants, do not require equity in exchange for funding, which can be helpful to retain control of the company.Examples include Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs in the US, which provide funding for research and development for small businesses and start-ups without requiring equity in exchange. Also, the European Union Horizon 2020 program provides non-dilutive funding for research and innovation projects in Europe.
6. Customer Financing
Some start-ups offer customers the option to pre-order or pre-pay for a product or service, which provides the start-up with the funding it needs to bring the product or service to market.
7. Personal Loans
Entrepreneurs can also consider taking out a personal loan from a bank or other financial institution, or even a family member or trusted friend to fund their start-up.
It’s a good idea to consult with a financial advisor, lawyer, or accountant before making any decisions regarding funding. However let’s celebrate the fact that we live in an age where there are so many diverse options for funding of a start up biz. A little bit of creativity, research, and pounding the pavement can mean that you really can locate the funds to get your business off the ground in today’s wide-open business environment.