How to Fund a New Business

One of the biggest challenges facing most start-up is funding. Getting funds to set up your new business can be a daunting task. Investor’s don’t go around throwing money at start-up because it has exciting new ideas.

While it is true that finding a good source of funding is difficult for every new business, there are many funding options you can start to explore right now. Before you settle for any option, you have to consider it carefully because every loan has its advantages and disadvantages. You must do your due diligence to determine which option best suits your start-up.

That said, here is a top 5 list of common funding sources you can explore:

Bootstrapping

Bootstrapping also known as self-funding is one of the most popular funding sources amongst entrepreneurs. Given that the cost of doing business is at an all-time low, it makes sense to go it alone if you can afford to do so. The good thing about bootstrapping is that you get to keep full ownership of the business; all equities and liabilities are yours alone. The downside is that it may take a while to save start-up capital and if you are in a hurry to execute your business idea, this might not be a viable option for you.

Family and friends

This traditional method of funding a business is the most viable option for many entrepreneurs. Pitching your idea to family and friends is great, but be careful if you’re going this route. You should get a lawyer to draft a proper agreement and have your lender’s sign it. While friends and family loans can be thought of as a grant, sometimes it can go wrong if things are not laid out in the outset.

Banks and credit union

Banks are the hardest to get a loan from mainly because of regulation. Banks rarely give out loans that are not backed by collateral. The best way to approach the bank is by building a relationship with a bank that is familiar with your industry. Open an account and maintain a clean credit record. This will be helpful when you’re ready to take your business to the next level. Another good alternative is to seek an SBA (Small Business Administration) loan. They have very low-interest rates and demand less collateral.

Venture capital

Many businesses are resentful of venture capitalists because they are perceived as unwilling to invest in new start-ups. This misconstrued notion doesn’t take into account that venture capitalists are charged with the responsibility of investing people’s money. These professionals are careful and won’t take unnecessary risks. You shouldn’t approach venture capital unless you have a product that is unique and has proven management capability. Venture capitalists want to see that you are capable of running the business and that you have a track record of running such a venture. If you meet the criteria you may well approach venture capital.

Crowdfunding

Crowdfunding is making a wave; this new concept is a great way to get funding if you have an established network or business idea that resonates with people. The benefit of crowdfunding is that you can use the channel to raise funds and build brand awareness. It also provides you with the opportunity to be creative and experiment with different ideas with relatively low risk. Some of the most popular crowdfunding platforms include Indiegogo, gofundme, and kickstarter. These platforms are different in how they operate; check them out to see which one fits your needs.