It should come as no surprise that the one thing entrepreneurs struggle with most is financial issues. In fact, cash flow continues to be the single biggest reason small businesses fail, causing up to 82% of company collapses.
Getting your startup onto solid ground from the beginning can help you avoid costly issues down the road—but it’s not always clear how to make that happen.
After all, when the time comes to raise money in order to fund your business, the range of possibilities can be enough to make your head spin. How does a startup get funded, and what are the most popular types of funding? Let’s take a look at the basics of raising money for your startup that are typically the best funding options chosen by most entrepreneurs.
How Startup Funding Rounds Work
Before we dig too deep into the common sources of business startup funding, it’s a good idea to understand how the process works. If you’ve heard of the term “rounds” in these financial discussions, you may be wondering what it means.
Essentially, no startups can raise all of the cash they’ll need to run their business forever. Instead, they’ll have to raise more and more capital as their company grows and develops.
Each of these instances of building capital are called funding rounds with the first one called the “startup funding round.” Each subsequent round of funding after the first one is designed to finance the next milestone of the company’s growth. The time between rounds can vary from months to years, depending on the company.
In other words, most companies find that their funding process really never ends and will most certainly extend beyond the startup funding round. This means that you will be considering each of these possible and potential funding resources over time as you grow your business. The most commonly thought-of resources really depend on your changing financial needs and preferences. Let us explore the following options to find the best startup resources and subsequent sources for your brand!
And, let me give you the good news: the more successful history you have with your business, the more funding sources open up to you that you may never have considered! How exciting is that?
1. Personal Funding
While large numbers of startups require external sources of funding, some may be able to get by using only their personal funds.
As the name suggests, this option happens when you finance the launch of your new company with your own money.
This can be difficult for many entrepreneurs, especially if the vision for their new business will require a hefty sum of money. However, taking time to save up in advance can be a great way to fund your new company without relying on external parties for help. You may also be able to use your personal credit cards as well, though you’ll need to do so with care.
2. Funding from Friends and Family
If you don’t have the ability to raise funds on your own, you may still know someone who can help. Whether you seek the financial support of a large number of friends or you get backing from a single family member, securing funding through someone you know can be a good way to finance your company without the complications of some of the options below.
However, it’s worth considering the nuances of this decision. Because you know the investor personally, decide whether you want to risk the potential drawbacks. Bringing money into a personal relationship can complicate things, for example, and you’ll need to be sure you’re both on the same page about the amount of risk and their level of involvement in your brand. It is a great way to lose a friend unless you are careful at the beginning of this relationship.
3. Small Business Loans
For most, this is considered the traditional funding option. With a small business loan, you’ll borrow money from a lender and repay it over a set period of time. The lenders in these types of transactions are typically institutional and often will have their own procedures that are more complex and time consuming than you would care for. They will, for example, review your personal credit. They will look at your track record as a business owner, The important thing to consider in these types of loans is that the lender with whom you are dealing may have a loan limit per customer that is too low to do you much good.
There are, for example, a category of lenders called “micro-lenders” with very limited abilities to fund a larger project. If you need a small amount of money, however, these may be just what you need.
If you have a good track record with your credit and previous business opportunities, your lender may have little problem funding your company. However, keep in mind that you will often need to provide some sort of collateral to guarantee the loan. Additionally, it is probable that you will be asked to sign the loan documents personally.
If you’re considering this method, you may want to apply for startup funding via an SBA loan. These government-backed options offer low interest rates, and they also make it easy for entrepreneurs to access the capital they need when they need it.
4. Angel Investors
If you’re looking for large sums of money, angel investors may be a good option for your company. Note that I didn’t say venture capitalists. Venture capital is completely separate and apart from angel capital. Angels can help fund your business via their own private equity though they’ll do this in exchange for the reward of ownership in your business. Venture capital is for large capital raises and just the due diligence process alone can take several months to complete and cost you tens of thousands of dollars in fees for the process.
In addition to financing, an angel investor who is interested in your business may also provide additional support with the right person . These investors are often keen to help in the early stages of your business. This means that you may also get access to expert advice on everything from forming your company to marketing your services.
5. Crowdfunding
Most modern business owners will have heard of this relatively new funding option. As the name suggests, crowdfunding happens when a crowd of people come together to fund your business venture.
Major crowdfunding platforms like Indiegogo and Kickstarter can give you access to a diverse audience of potential investors, as well as the tools you need to present the best picture of your business to them. There are also many different types of crowdfunding, from equity crowdfunding to real estate crowdfunding. Do your research to decide which platform, audience, and type of crowdfunding will work best with your brand.
Find the Perfect Source of Funding for Your Needs
Putting your startup on solid financial ground can help you pave the way to future success, but reaching that point requires a great deal of forethought and planning. Fortunately, the more you know about funding sources, the closer you are to finding the right backing which will allow you to move forward with confidence.
To make sure that your confidence extends to all areas of your business, it’s important to make sure you have the right support system in place. Our team can help you formalize your growing business with certainty, and we’d love to help. Learn more about our services and reach out to us today to hear what we can do for you.
Remember the old adage: “do what you do best and hire the rest.” Or more clearly, you are not a master of everything that you need to do to get your business formed, funded, launched, growing, raise more money, hiring more people, finding your team, and then exiting your company. No one person has ever been able to do all of these tasks well, or even most of them at all.
That is why I developed StartUp Business Pro, LTD. Every entrepreneur that I know needs help from certain people at the inception of their business. It is at this early phase of their daydreaming about owning their own business that planning can make or break you and your company. Make sure to reach out to us if you need 360ۚ° of pure protection, the best planning done by the best coaches, and the best advice about fundraising anywhere. We are truly the turnkey solution to getting your business formed and launched strategically, fast, and well-funded and operating.
Steve Replin, CEO
StartUp Business Pro, LTD
www.Launch30.net
