While having a great business idea is crucial, getting enough funds to start and grow it is very important. Many founders financed their new company with their savings or got a loan from their family and friends.
Still, there are several other options that you can try to raise funds for your new venture. However, you must understand that raising money as a startup is not easy and may take longer than you expect.
The article will review 10 startup funding options that a founder can consider.
1. Angel investors financing
An angel investor is a person who invests in an upcoming startup. The individual or group of networks screen your business proposal before investing in your upcoming startup.
Besides funding your company, angel investors will guide and assist you in the way. Experienced business people will help you save a huge amount of money in the long run.
Companies such as Yahoo, Google, and Alibaba are among prominent companies that were started with the help of angel investors.
2. Venture Capitalists (VCs)
These are firms that invest in a company in exchange for equity. This is an excellent way of raining capital as a startup because you don’t have collateral to take a bank loan.
Establishing a good relationship with venture capitalists is beneficial because they can provide your business with industry connections to potential partners, customers, and top talents. They may also share with you knowledge and a clear direction.
Getting venture capital financings can be extremely difficult because they invest in startups with high growth potential, with some tractions such as early customer adoption, a strong team of people, or working product prototype.
You can put the full description of your business on a popular crowdfunding platform, and then several investors can pool money to fund your business if they like your idea.
Aside from raising funds from multiple funders, crowdfunding can help your business promote its products and services. These individuals donate capital to your business in exchange for some form of profit, equity, one of your products or services, or more.
4. Peer To Peer (P2P) Lending
In this option, you can create an account with a platform that connects lenders and borrowers. The website will keep the records, connect you to lenders, and transfer funds if you’re successful. P2P is an excellent way of raising money for small businesses. However, this option is only available in limited locations or states.
Governments offer grants to startups in certain fields such as science or research. Thus you must meet specific requirements for you to get a grant.
6. Incubators and Accelerators programs
An incubator nurtures the business by providing training, tools, and network. On the other hand, an accelerator helps the company to take important decisions and grow.
These programs require time commitment throughout the 4-8 months, but you will benefit from the good connections you create with investors, mentors, and fellow startups.
You can participate in a competition that receives business ideas in exchange for a prize. Registering to participate in a contest is an excellent way of not only raising money, but it gives you some media coverage.
Therefore prepare a business plan or build a product, then register to participate in a contest where you can share your business idea.
8. Invoice Financing
Also known as factoring, it is where a service provider gives you some money in advance based on the outstanding accounts receivable and then repays it once your customers settle their bill. This arrangement gives your business some cash flow to help it continue running as you wait for your customers to pay.
That means your company can close the gap or have a steady cash flow to continue accepting new projects.
9. Small Business Credit Cards
There are small credit card issuers that target small businesses and come with special benefits such as airline mileage, and cashback rewards, among others.
However, the issuer will rely on your personal credit score and history. Further, any late payments or defaults will injure your personal credit rating.
10. Merchant Cash Advances
This is a quick way of getting capital though highly expensive. Thus cash advances should be your last resort because the merchant takes a small cut every time you make a sale until you clear the advance. This option shouldn’t be your long-term strategy of raising capital for your new business.
Advantages of Alternative Lending
Securing funding through other means, excluding the traditional sources such as bank loans, has several advantages. These includes:
Overall Business Guidance
The strategic partner will offer you additional help besides capital which includes knowledge and connections. Their viewpoint and advice are invaluable because they have the required experience to guide a new business.
The investor will not only join your board but will likely share their finance, HR, IT, and marketing team at a favorable rate.
Your strategic partner has been in business for a number of years, has built a good reputation, and created an extensive network in the industry. Thus getting funding from angel ventures or venture capitalists allow you to ride on their goodwill.
Although the partner will guide you throughout your entrepreneurial journey, they are more likely to be involved in managing their other businesses. Therefore, they will rely on your occasional updates but not the day-to-day activities of your business. This will give you the freedom to run your business.
Like other businesses, your startup requires working capital to thrive. Therefore, you can get capital by choosing any of the 10 startup funding options.
Gather the right market information about each funding and establish the best financing option based on your unique circumstances. This will increase the likelihood of your startup surviving in the long run.
Further, building a good network with investors will help you find the right strategic partner who will give you capital, connections, knowledge, and guidance. In some situations, they may share their resources which will give your startup business a good foundation.
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