9 Simple Ways To Secure Financing For Your Startup
- May 6, 2019
- Posted by: jamid
- Category: Business Consulting, Finance & accounting, Start-Up
Many people had a dream of owning their own business and running it. However, the facts are that only a few people try it. And even less ends in a successful, prosperous company.
It’s never a good business strategy to place all your eggs in one basket. This is particularly true when it comes to financing your startup. The diversification of your funding sources not only improves the potential weather conditions of your startup, but it also increases your chances of receiving adequate funding to satisfy your individual needs.
Keep in mind that banking is not your only source of money. And it demonstrates to lenders that you are a proactive entrepreneur that you have searched or used various financing alternative.
Each source has special advantages and drawbacks as well as criteria for assessing its business whether you decide on a banking loan, angel investors, government grants or an incubator.
Whether you decide upon a banking loan, angel investor, government grant or an incubator, each of these sources of financing has special advantages and drawbacks, as well as criteria for evaluating your business.
Still not sure where to start? Here are 9 simple ways of financing your startup.
1. Personal investment
Your first investor, either with your own money or with collateral on your assets, should be your first investor. That shows investors and banking professionals that you are willing to take risks and have a long term commitment to your project.
2. Side Hustle
Basically, the side hustle as a way to finance your business venture involves you getting a second job. However, this option is also disadvantaged. One of the disadvantages is you begin to get so tired that you don’t have the energy left to continue to start your new business.
Another is lacking or running out of time to work on your business as a result of spending more time working for someone else.
If your side hustle provided you profit money, set aside that extra money, you could be in business before you know it. But beware of the temptation to use that money for things other than its intended purpose.
Should this happen, it is entirely possible you’ll never reach your goal of having your own business. You must be very hawkish to protect that money for the payday that will come if you can make this side hustle work for you.
3. Love money
This is money that a spouse, family, friends loans. This is regarded by investors and bankers as “patient capital”-the money to be paid back later as your business income increases.
When borrowing love money, you should be aware that:
- Family and friends rarely have much capital
- They may want to have equity in your business
- A business relationship with family or friends should never be taken lightly
4. Venture capital
First of all, venture capital is not necessarily for all entrepreneurs. You must be aware from the very beginning that venture capitalists seek technology-driven enterprises, and enterprises with high growth potential in sectors such as IT, communications, and biotechnology.
Venture capitalists take an equity position in the company to help it carry out a promising but higher risk project. This means giving an external party some share of ownership in your company. Venture capitalists also expect healthy investment returns, often generated when the company begins to sell shares to the public. Be sure to look for investors who bring relevant experience and knowledge to your business.
We at JD Business Group, we advise new businesses about securing financing from different sources to get established in its market.
Angels are usually rich people or pensioners who directly invest in small companies which belong to others. Often they are leaders in their own field who contribute not only their experience and network of contacts but also their expertise in technology and/or management.
They reserve the right to supervise management practices of the company in exchange for risking their money.
Specifically, a seat in the Executive Board and an assurance of transparency often involve this. Angels tend to maintain a low profile. You must contact specialised groups or search Angels’ websites to meet them.
6. Business incubators
Business incubators (or accelerators) usually focus on the high-tech industry by supporting new companies in several development stages. Local economic growth incubators are also available, which focus on areas such as job creation, revitalisation and hosting and sharing services.
Incubators are generally invited to share their premises, administrative, logistical and technical resources, with the future enterprises and other emerging enterprises. An incubator, for example, could share the use of its laboratories in order to allow a new business to develop and test its products cheaper before production begins.
The incubation phase can generally last for up to two years. Usually, the company leaves the premises of the incubator when the product is finished and is independent from the industrial production phase. Companies with these types of support often operate within advanced industries, such as biotechnology, IT, multimedia or industrial technology.
7. Government grants and subsidies
Government agencies provide financing to your business, such as grants and subsidies.
Getting grants can be tough. There may be strong competition and the criteria for awards are often stringent. Generally, most grants require you to match the funds you are being given and this amount varies greatly, depending on the granter. For example, a research grant may require you to find only 40% of the total cost.
Generally, you will need to provide:
- A detailed project description
- An explanation of the benefits of your project
- A detailed work plan with full costs
- Details of relevant experience and background on key managers
- Completed application forms when appropriate
Most reviewers will assess your proposal based on the following criteria:
- Assessment of expertise
- Need for the grant
Some of the problem areas where candidates fail to get grants include:
- The research/work is not relevant
- Ineligible geographic location
- Applicants fail to communicate the relevance of their ideas
- The proposal does not provide a strong rationale
- The research plan is unfocused
- There is an unrealistic amount of work
- Funds are not matched
8. Bank loans
Banking lending is the most frequently used source of finance for SMEs. Consider that all the banks have various advantages, be it personal service or custom reimbursement. Shopping around and finding the bank which will satisfy your particular needs is a good idea.
You should generally know that bankers are looking for companies with a good record and excellent credit. A good idea is not enough. A sound business plan needs to be supported. In addition, startup loans usually require an employer personal guarantee.
You can start your own business using crowdfunding. It works by making it possible to put your money into your business with the money of other people.