The thought of starting your own business can be ever so exciting. But just as you begin to daydream about your new prospect. It suddenly hits you. Where am I going to get the money to fund my small business?
Funding a business is something that all potential business owners need to think about. Unless of course, you are starting a business that does not require any capital which is entirely possible. (Check out 10 business ideas that require no money here).
The funding method you use can quite literally make or break your business so be sure to choose wisely.
Before we take a look at funding options be clear on the following:
- Know your business – You need to have a clear understanding of your business in order to be able to convince others to believe in it too. You are not expected to know everything about your business from the very beginning. But understanding what your business is and the direction you plan on taking your business will allow you to convince others.
- Know yourself – Knowing yourself and what you have to offer is just as important as knowing your business. Investors may think your business idea is great. But if they do not believe that you are the right person to carry the idea forward then they will not invest. Identify your strengths and weaknesses and work on improving your weaknesses.
- How much funding you need – In order to determine how much funding you will need for your startup you first need to create a cash flow to understand your ingoings and outgoings. Knowing your numbers will not only help you in the long run. It will also prove to investors that you are compotent enough to handle the financial aspects of your business.
Once you have a clear understanding of the above points it’s time for you to discover…
10 Ways to Fund Your Small Business
1. Family and friends
When it comes to starting a business it’s always best to start with the people you know. This goes for your initial customers and can also include any investment you may need to get started. After all, the people you know are more likely to believe and support your business venture.
That being said it may not be the best idea to get your family and friends involved in your business.
- Family and friends already know you and will generally require less convincing than other investors.
- The saying “never mix business with pleasure” rings true which is why I recommend caution when considering this option. Getting your family and friends involved in your business affairs is risky and may change your relationship for the worst.
If you do choose this funding method setting unambiguous terms and conditions from the get-go will create clarity for all parties involved. For example, deciding how much interest they will charge (if any) and whether your friend or family member expects a share in your business are things you need to consider. This will help to avoid any future misunderstandings.
Take a look at your local government website for details of any business grants you may be entitled to.
In addition to your local government, you can also look into your business niche to see if there are any grants available to you.
Independent business support organisations within your local area may offer grants to help new businesses.
When it comes to grants be sure to explore all options. After all, grants give you the opportunity to start your business debt-free. It doesn’t get much better than that. So, if you are lucky enough to be eligible for a grant then go for it!
- Grants can be a great way to fund your business because you don’t have to pay the money back. A grant may cover some or all of the costs associated with your business helping you to start your business debt-free.
- You often need to meet certain criteria to be accepted for a grant.
If you have any money saved up for a rainy day, or for a day when you come up with a fantastic business idea. Now is the time to use it!
- If you have enough money to get started then you won’t have to go through the gruelling process of seeking external investment.
- If for whatever reason things don’t go according to plan with your business you could wind up losing some or all of your savings.
4. Start a side hustle
You may already have a full-time job that pays for the necessities you need to get by. A side hustle will allow you to earn some extra cash that you can use to fund your business idea. If you are interested in this funding option then Check out 30 best side hustle ideas you can start today.
- If you have time to spare then starting a side hustle is a great way to earn extra cash for your business without getting into debt.
- If you need a large sum of money and need it fairly quickly then you may want to consider another funding method.
There are many different types of loans that you could get to support your business these include:
- Once approved you can generally expect to receive payment on the same day.
- As well as high-interest rates there are some unscrupulous payday loan providers within the industry. Make sure to research the company beforehand.
Banks offer a lower interest rate compared to other types of loans.
You will have to convince the bank to loan you the money which can be a time-consuming process. Your credit score will greatly influence your bank’s decision to loan you money.
Depending on the type of business you intend to run you could be entitled to an interest-free loan. This type of loan is a lot healthier for your business finances given the fact that even though you have to pay back what you have borrowed you don’t have to pay any interest.
- You do not have to pay interest on the loan you receive.
- You will have to pay back the money within the agreed timeframe.
6. Credit Cards
Credit cards are generally easier to get compared to loans.
- A great alternative and easier to obtain even with bad credit.
- Credit cards are often met with high-interest rates.
Crowdfunding involves asking for money towards a project, cause or venture from a pool of people usually online. GoFundMe is a classic example of a crowdfunding platform.
- A way to secure debt-free funding for your business. You can reach a larger amount of people which in turn increases your earning potential.
- Because this method requires people to believe in your idea when they know very little about you it can be difficult to reach your target.
8. Business Angels
A business angel is an independent investor who will lend you the funds needed for your business in exchange for a share of your business. You will need to pitch your idea to the angel.
And you’ll also have to ensure that you clearly decide what you are willing to offer in exchange for investment. For example, you may decide that you are not willing to go over a certain percentage. You also need to decide if you want to have full control over your business or if you want support from your angel.
- If you require extra support from someone with business experience then a business angel can be a great way for you to get the extra support needed.
- In exchange for their money, time and possibly expertise – your business angel may ask for a higher share of your business than you are willing to part with.
9. Incubators and accelerators
Incubators and accelerators offer a seed investment and mentoring support for a share in your business. The support given can help you to grow your business at a faster rate.
- The support offered can help you to grow your business at a faster rate.
- Can be more difficult to be accepted for this type of funding.
10. Venture Capitalists
A venture capitalist is a person or a pool who primarily supports high-risk startups and small businesses. They are able to provide large sums of money to fund your business.
- If you need a large amount of money for your startup then you may want to consider using a venture capitalist.
- Using a venture capitalist may mean that you have less control over your business.
Starting a business can be a pleasure but it can also turn into a pain if you can’t secure the funding to take you on your entrepreneurial adventure.
I hope that this article has helped you to gain a clear understanding of the different ways you can fund your small business.
Remember, a great idea will only ever be a great idea if you don’t take action.
Don’t let your great idea go to waste. Start-up TODAY!