Research shows that 79% of startups fail due to a lack of sufficient funding. Money is fuel for any business, and you can’t possibly transform your brilliant business ideas into a revenue-generating venture if you don’t have adequate capital.
Most entrepreneurs struggle with how to get startup capital for their business, but it shouldn’t be the case in today’s world. Below are some of the best ways on how to get startup funding.
Want to prime yourself for startup success? Sign up to Goodwall!
- Develop skills & experience
- Highlight accomplishments
- Network globally
- Find your next cofounder or mentor
Download the app now to get started!
1. Grants and Subsidies
If you need smaller amounts of capital to fund your startup, you can consider applying for grants from private enterprises or the government. Although securing a grant for your business can be a challenging affair, it will be worth the effort if you’re successful.
Most governments have programs for funding innovative ideas in their jurisdiction. You should apply for industry-specific grants to increase your chances of securing the funding. For instance, you can choose to apply for grants set aside for women, the youth, veterans, minorities, and climate-smart or sustainable farming startups.
You must also offer a comprehensive plan on how you’ll spend each coin. Although you can get a substantial amount of money from this type of startup funding, you should be ready for a stringent scrutiny and approval process, and the funds’ release may take longer.
2. Angel Investors
Entrepreneurs who’ve established successful businesses at times offer money to startups to help them overcome the challenge of funding. In exchange, the angel investors get a share of the profits. In most cases, these investors also offer valuable advice on how to run a startup.
Most angel investors have a history of funding startups. If you consider this type of startup funding, you should be ready to share the profits with the investor. Alibaba, Google and Yahoo are some of the well-known businesses that have benefitted from angel investors. Most of these investors are more interested in promising, risky businesses that offer high returns.
In other words, angel investors are individuals or enterprises that are willing to support your idea with money, time and other resources. You can get angel investors from your list of financial advisors, mentors, relatives or your network in the entrepreneurial scene.
Bootstrapping involves using credit cards, personal savings, borrowing from friends and family or promising stock for equity to fund your startup. It’s interesting to note that more than 90% of businesses rely on internal/personal funding to keep going.
Valiant entrepreneurs find out ways of raising funds for their business without engaging third-parties. Money raised through bootstrapping can be used to cater for office supplies, incorporation or establishing a business website. Startups that fund their business via this route avoid getting into debt.
Another advantage of raising funds from your friends and relatives is that servicing the loan can be more flexible than conventional loans. However, although bootstrapping is an excellent way of raising funding for startups, it’s not practical for large businesses.
4. Commercial Lenders
Typically, commercial banks are less likely to lend money to startups because they’re riskier than established businesses. But if you have adequate assets that can serve as collateral for your loan, you can access funding for your startup from commercial banks.
The government discourages banks from lending money to startups to secure depositors’ funds. Banks rely on several parameters when issuing loans to businesses, and they’re often not favorable to startups. When sourcing for funding from commercial lenders, you should focus on those that offer business startup loans.
A startup loan can range from $500 to $750,000. If the amount of money you’re borrowing is high, you’ll be subjected to stringent scrutiny. You must explain how you plan to use the funds and how you plan to repay them. Business startup loans should be repaid in one to five years, and the interest rate ranges from 8% to 17%.
5. Winning Contests
You can also fund your startup by engaging in contests or competitions that require you to pitch your business idea against competitors. This type of funding startups is competitive and requires you to have a solid idea and business plan.
In addition to funding, you can get media coverage for your startup to gain the much-needed publicity to grow it into a successful business. When participating in such a competition, you should also prepare to handle a possible loss since it can be demoralizing.
6. Small Business Administration (SBA)
The SBA guarantees loans for startups and small businesses. In this case, commercial banks are more willing to offer loans to startups because they’re confident that the loan will be repaid. You need to work with a local bank to get an SBA loan.
Typically, you need to raise a third of the funds required for the startup to qualify for the SBA loan. In addition, you must guarantee the loan amount through personal assets or reasonable business. The SBA works with certified lenders, and you can get funding for your startup via an SBA loan in less than a week.
7. Business Incubators and Accelerators
You can also get funding for your startup from accelerators and business incubators. These funds are available to startups in leading cities in different parts of the globe. The main difference between the two is that accelerators fast-track businesses while business incubators nurture startups.
In addition to funding, these financiers can offer the mentorship needed to ensure your business succeeds. You also get links to other related startups. The main downside of this program is that it’s available for a short duration (4-8 months), and if you’re not fully committed to the business, it may not succeed. Contact business incubators and accelerators in your area to get information on how to get startup funding.
8. Venture Capital Investors
Venture capital firms are similar to angel investors but they’re more organized. Rather than dealing with an individual, you engage a specialized firm to fund your startup. Venture capital investors are more disciplined and demanding because they operate in a very competitive environment and rely on external investors for their capital.
While venture capital investors focus on the business, angel investors concentrate more on the entrepreneur. And because a venture firm puts in plenty of capital towards a startup, it demands more control and puts in more effort into the investment, intervening in the startup’s affairs when necessary.
Venture capital investors are motivated to fund startups that promise big returns because they rely on outside funding. If you desire to go this route, you can contact a venture capital investor and ask how to get funding for your startup.
Secure Funding for your Startup Today!
Although securing startup funding is a headache for most entrepreneurs, it can be hassle-free if you have the right information.
It’s vital to ensure you have ample capital to grow your startup into a successful business considering that cash flow is a businesses’ lifeline.
Contact different lenders to see their lending terms and requirements before choosing what works for you.