Borrow Or Fundraise? Here’s 10 Creative Ways to Fund Your Startup
Moving on from your regular 9 to 5 job and starting your own business venture that offers something unique sounds like the ideal path to success. SpaceX, Spotify, Uber, and Airbnb are a few of the start-ups that have successfully positioned themselves in this ever-evolving market of start-ups. But, do all the businesses that start with a unique idea are actually able to have the same kind of outcome? Unfortunately, No!
According to a source, out of every 10 startups that are established, 9 of them fail. Statistic Brain also states that out of all the businesses started; 50% of them fail after five years, 70% and after 10 years.
One of the most common reasons why most of the start-ups fail is because of lack of capital. Most of the business owners often fail to start a venture with pre-planning the funding requirements that are essential for obtaining key infrastructure and having enough sufficient cash-flow to fund the day-to-day operations. This makes it clear that the one ingredient that can make or break your business is money.
Hence, you need to have a strong funding plan for your business venture that can help you achieve financial goals, stand strong in the cut-throat competition and remove glitches from the path to success. So, what are some methods that can help you fund your startup? Your first thought could be taking a loan from a bank as the primary source of money. However, when it comes to start-ups, banks are least likely benefactors. That is why you need to start considering alternatives that can come to your rescue; when you think “how to fund my startup?” iTMunch brings you a list of 10 such creative ways for starting your business. Keep reading to know more.
1. Start with bootstrapping
Ideally, the primary choice for collecting funds for a startup should be self-financing, which is also known as bootstrapping. In order to do this, you should consider investing your savings or generate some money before you decide to start your own business venture. Investing your own funds would not only help instil commitment but also you won’t have to worry about giving up any equity or control.
2. Ask you family or friends to fund your startup
Unlike any bank or any other financial institution, your closed ones have a personal interest in your business venture. Hence, approaching them for funding your startup can be one of the ideal ways to turn your innovative idea into a big success. Make sure you approach them with a strong & formal business plan, and a rough estimation of when will they receive their investment back. This can help you secure their financial future, without jeopardizing personal relationships.
3. Secure an SBA Loan
In the US, the Small Business Administration (SBA) is a government entity that assists small businesses by offering loans and grants. Before approaching SBA, make sure you read and understand all of their criteria for being eligible for a loan. Read more about SBA here.
4. Consider Crowdfunding for startup funding
If you aren’t able to raise funds for your start-up through bootstrapping or from your closed ones, the internet can come to your rescue. Today, there are a number of websites that can help you find like-mined people, with small amounts each, who are willing to back your efforts. One of the examples of a crowdfunding website is Kickstart which can be an effective way to raise money at a relatively low cost.
5. Attract an Angel investor
Another way that is used by most of the start-ups today is getting funding from Angels investors. An Angel investor can be an individual or business who is willing to fund your startup in exchange for a portion of the equity in that business. A good Angel investor is also very likely to provide you with a strategic direction for the company as part of their investment. Find more details about approaching Angel investors here.
6. Don’t forget a microloan
Just because you do not have any credit history, collaterals and others for securing a loan through a back, does not mean you won’t get funding at all. This is when private companies and non-profit organisations can help you get a microloan. As the name suggests, these micro-lenders offer smaller loan sizes, which usually require less documentation. For more details about applying for a microloan and getting it secured, click here.
7. Try out product presales
In this method, you can consider selling your products before the launch of the company which can help raise funds. This method is often overlooked by startup owners, but it is one of the most creative and innovative ways to finance your startup without actually starting it. Make sure you assess the pros and cons before pre-selling products, as it can difficult to cope up with bulk orders.
8. Grants to the rescue for startup funding
Similar to microlenders, there are various government agencies all over the globe that will back businesses with grants. A few of these are location-based and can depend on the nature of your business too. The main reasons why you should consider this method for raising funds is because they do not require any equity and most often you don’t have to pay them back.
9. Use peer-to-peer lending as an alternative
Just like crowdfunding, peer-to-peer lending is a process wherein a group of individuals comes together to lend money. This method has been around for quite some time. Small business groups or ethnic groups are a few examples of peer-to-peer lending by supporting similar efforts.
10. Tap into 401 (k)
Another alternative to borrowing a loan from a bank is tapping into your 401 (k), which you have accumulated over the years. Thanks to provisions in the tax code, you will able to get these funds without risking a penalty if you follow the right steps. Here, you will be risking the funds saved for your retirement. So make sure you approach someone who has prior experience in setting up a C corporation and the appropriate retirement plan.
This is a list of 10 creative ways that can help you raise funds for your startup. Keep reading iTMunch for more such startup blogs and news!