Starting a new business entails a number of crucial steps in order to get a good head start: creating your business plan, developing your product, doing market research, and looking for the right people to work with you — just to name a few. What’s most essential, however, is acquiring the necessary funds to get the gears turning; after all, you can’t start a business without capital.
Bank loans are often the first options entrepreneurs consider when thinking of funding, unfortunately, it’s not that easy to get approved. Other banks also have crippling interest rates that might be hard to pay off when profits are sluggish at the first few months or years after launching.
However, there are certainly other ways to get funding for your business. Here are five other funding options you can consider for your startup:
Many entrepreneurs start out their business by financing it on their own. This is termed as bootstrapping or self-funding, which typically includes scraping together any funds you can gather, such as your personal savings.
Bootstrapping is practically more beneficial than borrowing money, as you won’t need to hurdle monthly payments and its large interest rates. In most cases, many entrepreneurs continue to bootstrap until their business becomes more profitable. However, depending on the type of business, self-funding is best reserved for those that don’t require a lot of initial investment.
2. Angel investors
Angel investors — otherwise called private or informal investors — are good options for funding, as they provide more favorable and flexible funding terms compared to other lenders. Angel investors are typically affluent individuals who provide funding for startups in exchange for ownership equity or convertible debt. You can connect with angel investors in industry-specific networking events or through your local chamber of commerce.
The advantage of having angel investors is that they also often offer mentoring and advice to help startup entrepreneurs take their first steps. Unlike venture capitalists, who are only drawn to invest in companies where they are most likely to earn massive returns, angel investors are focused on helping startups successfully take off. The downside of angel investors, on the other hand, is that they usually offer lesser funding compared to venture capitalists, as they typically use their own money.
3. Crowdfunding campaigns
Crowdfunding is among the newer and more modern ways of funding your business. This can be done through crowdfunding platforms — such as Kickstarter, Inidiegogo, Crowdrise, and GoFundMe — where you can create a campaign, set a goal for how much money you want to raise in a specified time, and persuade people to pledge certain amounts to your cause.
Anyone can pledge to your campaign. Usually, entrepreneurs offer rewards to pledgers, such as being able to pre-buy their products, receive a product for free, or get prioritized in employment opportunities.
One of the appeals of crowdfunding is that it doubles as a marketing tactic to get the word out about your business even before launching. However, it’s worth taking note that some crowdfunding sites take a cut from your pledges and some may even require a setup or promotional fee. Some of the most successful crowdfunding campaigns required some marketing investment to further their reach in communicating their campaign to as much people as possible — such as setting up paid ads across media channels and putting together a promotional video.
4. Business incubator and accelerator programs
Business incubators are organizations that offer programs to help companies with the aim of speeding up their growth and success, and commonly stay with the company until their goals are met. Their function often overlaps with business accelerators, but the latter usually have a set timeframe of 3 to 4 months, and doesn’t only focus their efforts on early-stage companies but also on those that have already been launched for quite some time.
Business incubator and accelerator programs provide viable opportunities for startups to connect with potential investors and other funding sources, as well as access to mentorship, networking, and affordable office spaces. The programs usually run for a certain number of months, and it takes time and commitment. In the US, some of the popular business incubators are Y Combinator, TechStars, DreamIt Ventures, and AngelPad.
5. Product pre-sales
One of the least popular methods of getting funding for your startup, but still a highly effective option, is through product pre-sales. This simply means that you allow pre-order arrangements of your products prior to the official launch date. This is a great way to set up some sort of product hype and can also function as a way to test the waters for product demand.
The risk, however, is that you would need to invest a certain amount of money upfront for the development and completion of your product before launch. In most cases, entrepreneurs who choose this route pair it with bootstrapping or getting a business partner to help with the funding.
All these options would depend on what type of business you’re planning to start and how much capital you need. Sometimes, it’s a smart move to get financial support from multiple sources, while sometimes it’s a better idea to take a more conservative approach. What’s most important is that you plan your business and finances carefully and strategically.
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