Starting a business can be incredibly rewarding. It can also be incredibly expensive. Many types of businesses will have to rent a commercial property, buy all kinds of equipment, and cover staffing costs. Even if you're running a small home business, you'll still need to spend money on legal, marketing, and other essential costs. Luckily, there are multiple ways to fund your startup business.
The method of funding you should use depends on what kind of business you're starting. For instance, while some entrepreneurs will need to seek the help of a bank or a wealthy investor, others might be able to start their business with little more than a personal loan or even by crowdfunding. Here are five of the best ways to fund your startup business.
1. Business Loans
The first and most common option is to head to the bank to get a loan for your business. Getting a business loan is generally the easiest option for new businesses. Although you'll still have to present your business plan and explain how much you need and what you need the funds for, you'll generally be approved as long as you come prepared.
Many banks offer generous business loans that can cover all of your necessary costs. The only drawback is that you'll need to pay them back with added interest. Even if you plan to start earning revenue quickly, it's best to look for a business loan with the lowest interest rate possible so you don't end up paying more than you need to.
Keep in mind that, although some online lenders also offer loans for businesses, these are best avoided as they come with excessive interest rates. Instead, stick to trusted banks and institutions and ensure that you don't end up in a position where you can't pay back your monthly payments. If you're opening a small business, you could also consider using a regular loan instead.
2. Investors and Venture Capital Firms
Some entrepreneurs find that the best way to fund their new business is to speak to investors. Investors are businessmen and professionals who are willing to give you the money you need in exchange for shares in your business. Although you'll need to sacrifice a part of your business, they can give you all the funds you need and even some advice for running your business.
If you want to reach out to investors about your business, you'll need a thorough business plan prepared. You'll also need a good pitch that explains why they should be excited about your business and how they'll benefit from investing in it. If they accept, you'll need to negotiate the terms as they might want a hefty share in your business.
You could also look into organizations that regularly provide new businesses with funding. Venture capital firms and startup incubators are specifically in the business of providing exciting new businesses with the funds they need and helping them succeed. If you have a good business idea, then these firms can help you get it off the ground.
3. Business Grants
If you don't like the idea of paying back a loan for years or sacrificing shares in your business, you might want to look into business grants instead. Business grants are provided to promising businesses that need extra financial help. The benefit of these is that they're completely free and you don't have to pay anything back.
Business grants are often provided by national governments, local governments, and even organizations that support certain industries. Make sure you search thoroughly to find out what grants you're eligible for and apply for them as soon as possible as they can cover a huge chunk of your startup costs.
With that said, it's also important to note that grants are much harder to get than loans. Usually, only a limited amount of grants are issued so your business idea needs to stand out. What's more, the amount you get from a grant might not be enough to cover all of your costs, meaning that many businesses combine funding from grants with a loan. Nonetheless, if you can get a grant, you should.
One of the most interesting ways to fund your business is by crowdfunding. Crowdfunding involves advertising your business idea to regular consumers and asking them for donations toward your startup costs. Some businesses use this to cover a portion of their costs whereas some get enough funding to cover all their needs.
With crowdfunding platforms like Kickstarter and Indiegogo, you can put up a page promoting your startup business plan and allow people to instantly donate. Although you won't need to give them anything in return, it's best to offer an incentive for donors, such as free memberships for your new service or free product samples.
Other platforms like SeedInvest make it easy for you to find investors via crowdfunding. This means that you'll have to give up shares in your business or pay them back, but it also provides a highly effective way to get the funding you need.
5. Personal Savings
In some cases, you won't need to ask external sources for funding whatsoever. If you don't like the idea of paying back a loan with added interest or giving away a share of your business to an investor, you might want to cover your business costs yourself.
If your business idea doesn't require a lot of funding, then sometimes you can get it off the ground simply by dipping into your savings pot. If you've spent enough time saving up, then you might have more than enough to start running a lucrative business.
Of course, this method is only recommended if you're starting a small business such as a solo freelancing venture. Using your savings is risky as, if you lose it, it's your savings you've lost. On the bright side, you can also use these personal expenses to reduce your tax bills.
You don't need to be rich or well-connected to launch a promising startup business. Whether you prefer to seek a bank loan, find investors, or even fund it yourself, there are plenty of good ways to fund a startup business. Make sure you do plenty of planning first to determine exactly how much funding you need and decide on the best way to get it.
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