Starting a new business is both exciting and daunting due to the low percentage of startups that make it out of their first year in business in the positive. Nonetheless, people are pursuing entrepreneurship at a rapid rate.
The success of your next business venture is largely dependent on securing adequate financing to support the needs of your business. It’s important to enter the funding hunt with the reality that financing a startup or new business venture is often more difficult than not. This journey can be murky waters to navigate by individuals with less than ideal financial landscapes.
Let’s discuss the most common ways to finance a startup. We’ll then cover resources for learning about financing options available to you, as well as alternative methods to secure funding should the traditional ways be unavailable to you.
Most Common Ways to Finance a Startup
Although financing a startup is a difficult process, the persistence of new business owners created a demand for a variety of finance options to get new businesses up and running efficiently. Financial firms, investors, banks, and other industry leaders continue to add options to this ever-growing list of ways to finance a startup.
Here are some of the most common ways to finance a startup:
Traditional Business Loan
New business owners will explore obtaining a traditional business loan at some point in their journey. Banks and other traditional lenders provide loans to business owners for various business expenses. These business expenses include:
- Securing inventory
- Purchasing new facilities
- Equipment upgrades
The low-interest rates and flexible repayment terms of a traditional business loan make it most appealing to new companies. But securing a traditional business loan is often the last resort for new business owners because of the strict approval criteria for these kinds of loans.
An angel investor will back a small startup or entrepreneur financially usually in exchange for ownership equity in the company.
An angel investor can offer a one-time investment into the beginning stages of your startup, or they can provide an ongoing contribution to the growth of your company. Working with an angel investor can provide a more intimate relationship that permits flexible repayment options or additional ways to make the investor whole.
Venture capitalists are usually national or large companies that invest in a new business in exchange for an equity stake in that company. Because you’re unable to provide any physical collateral for the capital they’re giving you, you’ll be required to provide an extensive report on the ins and outs of your business and present them in a way that highlights why a venture capitalist should invest in your startup.
Venture capitalists aren’t able to offer the type of intimate relationship an angel investor would, but there are significant advantages to connecting with the right venture capitalist. Working with venture capitalists provides a level of mentorship, a variety of resources, and an abundance of industry connections to leverage that other funding options cannot provide.
Credit Cards or Lines of Credit
It’s often easier to secure a credit card or revolving line of credit from a financial institution versus being approved for a traditional business loan. As stated above, traditional business loans are considered the holy grail of business financing because of their low-interest rates and flexible repayment options. But many new business owners cannot take advantage of this option because their financial situation isn’t in great standing.
Credit cards and business lines of credit do have significantly higher interest rates and stricter repayment terms, but they can provide some financial relief. They also get your foot in the door with financial institutions and build a relationship with them that may result in a future traditional business loan so long as you remain in good standing.
If you’re a new business owner, chances are you’ve started putting aside some cash to help you grow your business. Depending on how effective you are at your chosen savings method, you can accumulate sizable savings accounts to use for getting your business off the ground.
New business owners who are looking to stay away from accumulating debt usually turn to this as the primary funding option for their business expenses.
Family & Friends
One of the first options for financing is to reach out to family and friends that have expressed interest in supporting your next business venture.
Reach out to friends and family that are not only supportive of your new business, but have the financial capability to invest, whether that be an ongoing financial contribution or a one-time offering. Family and friends are easier to get on board with your business vision and can be most flexible when discussing how to repay their generosity.
Resources for Securing Capital for Your Next Business Venture
If you are launching a new business after bankruptcy, it can be especially hard to secure capital for your next business venture. You’ll have to start fresh and ensure you’re navigating your previous financial shortcomings in a way that allows you to obtain future funding. The start of this navigation is ensuring you have a solid system for accumulating resources for funding your new business.
Here are four trustworthy resources for learning about financing options available to you:
The Internet/Online Resources
The internet is a goldmine for resources related to securing funding for your next business venture. Sites like Gust.com, 500 Startups, Angel List, and The Funded are all dedicated to making your search for capital as easy, efficient, and valuable as possible.
Social media is also a valuable online resource for learning about funding options out there. With millions of people using social media platforms daily, a lot of them are heads of national companies, venture capitalist firms, or other entrepreneurial leaders that can offer to fund your business.
Networking events are a great way to build relationships with influential people and successful businesses in your industry. Connecting with established business owners as well as new business owners can reveal funding opportunities.
At entrepreneurial-focused networking events, people discuss a variety of topics when it comes to running a successful business. It’s beneficial to attend these networking events because you could potentially leave them with a list of contact information for suitable financing options.
Small Business Administration
The Small Business Administration is a strong resource for information related to getting your business venture off the ground. There is significant value in organizations that dedicate themselves to helping businesses thrive in any industry.
They work to inspire actionable change so small businesses can start, grow, expand, or recover with confidence. They’ve even got a page dedicated to funding programs available to you.
SCORE is another trustworthy organization dedicated to helping business owners thrive in each stage of business. They’re focused on providing the support and resources to business owners that aid in their growth, longevity, and overall success in their chosen industries.
It’s said that they’ve provided education and mentorship to more than 11 million entrepreneurs, with no plans of slowing down.
Alternative Financing Options for Your Next Business Venture
For many new business owners, traditional financing options will not be available. So, here are a few creative ways to secure capital for your next business venture.
Launch a Crowdfunding Campaign
Many new business owners are securing huge amounts of capital through crowdfunding campaigns. Crowdfunding campaigns are essentially when a “crowd” or group of everyday people fund a business venture versus an angel investor or venture capitalist. Share your story, set up your campaign on the best crowdfunding platform for your goals, and promote it vigorously to garner the support necessary for fully funding your business vision.
You can enter an asset-based lending contract by offering collateral to back the financed amount. If you’re looking to keep the equity in your company all to yourself, see if you can come up with valuable collateral to offer lenders with this option.
Grants & “Scholarships”
There are a variety of grants out there for specific types of businesses to help with different expenses. Many national companies have also launched initiatives and funding resources for startups and small businesses. The truth is that many of these funds and grant opportunities remain open because they just aren’t getting any applicants, so start with simply filling out applications for those that best suit your needs.
Securing capital for your next business venture allows you to plan, fund, and grow your business properly. Explore the most common financing options for business funding as well as alternative ways to secure capital. Also, be sure to use credible resources to continue adding ideas to your list of ways to secure capital for your next business venture.