Top 7 Ways To Get Funding For A Startup Business

Money is the lifeblood of any business. More than 94% of startups fail during the first year of operation, due to many reasons. One of them is inadequate startup capital. In this post, you will learn about the most typical 7 ways to get funding for a startup business.

Top 7 Ways To Get Funding For A Startup Business

1. Get Funding for Your Start Up Business Using Your Personal Investment

This is also known as self-funding or bootstrapping. It is one of the most common ways of getting startup capital for your business.

You can invest in your business idea using your own savings. This should be used as a first funding option because of the benefits attached.

There are many cases where startup companies need other sources of funding (either at the beginning or in future). A personal investment is proof to investors and banks that you have a long-term commitment to your business.

It also means that you have taken dangerous risks, which further means that your idea may be a profitable one.

2. Use Love Money as a Startup Capital for Your Business

You can also get your friends and family members to make some contributions.

A startup investment like this should be easy to raise, as there are no formalities or paperwork involved. You can also borrow money from them if they won’t give freely.

When borrowing love money from your friends and family members, you should keep these in mind:

They may want to claim some equity in your business if it later becomes successful.

This could affect your relationship. Imagine having a disagreement or hot exchange of words due to a delayed repayment. The relationship may not be as strong as it was before.

3. Approach Angel Investors and Convince Them to Invest in Your Startup

An angel investor is a wealthy individual or investor that has a huge amount of money. Such people are also usually interested in giving investment to startups and existing businesses.

Angel investors can also exist as a company or a group of investors. They will work in groups and have employees that will carry out market research to screen your business proposal before agreeing to invest.

Most angel investors demand some authority to make management decisions in your business. This can be a seat on the board of directors. They may also offer mentoring services and advice alongside the startup capital.

An angel investor is one of the best ways to get funding for a startup business. You can get as much as USD 25,000 to USD 100,000 from angel investments.

Don’t Miss – The First 7 Employees Your Business Should Hire

4. Get Funding for a Startup Business Through Venture Capital

If your startup is a type that requires millions of investments, venture capital is your best bet.

Venture capitalists offer investments to businesses and companies in exchange for an equity position. For instance, let’s say a venture capitalist demands equity of 7%. This means that such a person will own 7% of your business.

There are some things you should know before approaching and agreeing to the terms of a venture capitalist.

• Venture capitalists only invest in companies that have huge potential and profitability.
• They will own a certain percentage of your business until they exit.
• Venture capitalists will exit a company when they get a good return on investment. This usually happens when the business gets acquired (purchased) by another company.
• Venture capitalists can also get back their investment with profit by selling shares to the public in the stock exchange market. This only happens when the business becomes a Public Limited Liability Company (PLC).
• Most venture capitalists individuals and companies usually look forward to recovering their investment within 3 to 5 years.

If your business idea or brand will take longer than 5 years to start converting, your business proposal may not be considered or given the full investment it needs.

Venture capital is probably the best way to secure funding for a start up business. You can get all the funding you need without collateral or guarantors.

5. Get Funding for a Startup Business Through Business Incubators and Accelerators

Business incubators behave the way a parent behaves to a child. They will grow your business by giving it most of the things it needs to stand on its feet.

Business accelerators operate similarly, but there are a few differences. While an incubator grows a business till it can walk by itself, an accelerator only helps a business to take a big leap.

This means that your business must already be close to being successful before an accelerator can give you funding. If you’re still in the startup phase, you may have to rely on a business incubator.

Business Incubators

A business incubator will let you share its own company buildings. You will also be allowed to use their administrative, logistical and technical resources.

For instance, your startup may be working on a patent or a chemical product. An incubator will let you make use of its laboratories. That way, your startup business will spend little money to develop and test its products.

Most business incubators can grow a business for up to two years. Once the business or product is launched, your business will stop using its resources. At that moment, you have all you need to cater for yourself.

Businesses that use incubators are usually the ones in industries like biotechnology, information technology, multimedia, and industrial technology.

Many successful companies and products that you know today were funded by incubators and accelerators. Examples that everyone will know are Dropbox and Airbnb.

Suggested For You – Why Do I Need A Business Insurance?

6. Get Funding for a Startup Business With Loans From Bank and Microfinance Banks

A bank loan is one of the best ways to get startup funding for small and medium-sized businesses. Most banks also offer customized repayment plans to regular customers that want to start a business.

However, there’s a downside to this. Not all businesses can qualify for a bank loan. If your business proposal does not look profitable enough to the bank’s standard, you should try a microfinance bank.

Microfinance is mainly used by business owners with no access to bank loans. However, one should keep in mind that a microfinance bank can’t provide enough funding for big projects.

7. Government Grants and Subsidies

In some countries, the federal and state government do assist businesses and startups in the form of financial aid.

Note that it’s very difficult to secure this type of startup funding. This is due to the tough competition and the bottleneck criteria for awards.

The Bottom Line

How and when your business will require funding varies based on its nature and type.

If you get to the stage where you need funding for your business, you should consider these top 7 ways to get funding for your business.

We hope your business gets the funding it needs to stand on its feet. See you at the top!