Every year thousands of ambitious entrepreneurs start a new business with a great deal of hoping to succeed. But business statistics say that by the end of 5 years, almost 50 per cent of them go down. This is because money is the bloodline of all businesses. The long, thorough yet thrilling journey from thoughtful ideas to revenue-generating businesses need a fuel named capital. That’s why at the early stages, entrepreneurs find themselves asking – How do I fund my business?
Keeping the small business rate aside, many start-ups make it past that critical period and thrive. Which means there is money out there — there always is — but entrepreneurs have to know where to find it. They also need a sense of the strings that come with each flavour of capital.
Generally, most entrepreneurs tend to fixate on one or two sources of finance — often to their loss. But, it is always better to keep all options on the table. That being said, we have compiled 5 funding options that can help entrepreneurs raise capital for their start-ups.
Bootstrapping
When starting a business, the most effective way of financing is self-funding, also known as bootstrapping. First-time entrepreneurs usually face problems finding investors without first showing a plan for potential success.
The best way to bootstrap is to either invest from your own savings or to get family and friends to invest.
Advantages:
- It’s a quick, accessible source of finance. Plus it proves to the investors and bankers that you are committed to your project and are ready to take risks.
- Family and friends will be willing to lend money if they believe your business is worth the investment. They wish the best without any pretence.
Bank Loans
Commercial banks are one of the most popular sources of funding for small and medium-sized businesses. In general, banks look for companies with an excellent credit score and a good track record. They look for a solid business plan.
Entrepreneurs believe that in the early days of business, they have only limited funding options; therefore, most of them consider personal loans, fast cash loans, and small loans to fund their daily operations. But with banks, they have options to choose. Since all banks offer different advantages, considering whether you want a personalized service or customized repayment is important.
Advantages:
- Bank loans are one of the most affordable sources.
- Fast cash loans are easy and quick to procure. Usually, a fast cash loan can be granted within a day and can be used to pay any pressing expenses.
Incubators & Accelerators
Business incubators and accelerators assist hundreds of start-up businesses every year. These companies generally focus on the high-tech sector by providing support for new businesses in various stages of development. They pony up resources — cash, labs, space, consulting, office, marketing — in exchange for equity in young companies when they are most vulnerable.
Commonly, an incubator assists a business to walk, while accelerator helps it take a giant leap.
Advantages:
- Incubators nurture the business, providing them shelter tools, training, and network.
- Entrepreneurs will get an opportunity to make connections with mentors, and other fellow start-ups using this platform.
Angel Investors
As the name suggests, angel investors are wealthy angels (generally individuals or retired company executives) who invest in start-ups owned by others. They are often leaders in their own field who not only provide capital but also contribute their experience and knowledge to the start-up.
Advantages:
- Angel investors step in when most investors are unwilling to support a start-up.
- They are willing to take huge risks if they believe in the idea of the business and expect it to succeed.
Venture Capital
Entrepreneurs should know that venture capital is not for all start-ups. As a rule of thumb, entrepreneurs shouldn’t try this one in the earlier stages.
This type of financing is provided by opulent individuals, financial institutions and investment banks to start-ups with solid business plans.
Financing is provided in exchange for equity in the company.
Advantages:
- Venture capital is not a loan, So if the business fails, the entrepreneur does not have to pay back.
- Venture capitalists can offer invaluable guidance and advice. Their networking is strong, which can benefit start-ups in many ways.
Final Thoughts
No matter which source of funding you opt, all funding decisions involve complex trade-offs between the pros and cons they offer in short and long-term. Your best option? Check out all of them.