It should come as no surprise that one of the biggest hurdles that entrepreneurs must overcome is the prospect of finding adequate funding for their startup and growth of their business. This day and age though, it is fairly simple to find funding, however obtaining that funding may pose more difficulty.
If you’re not going to go with National Funding, then five of the most common funding resources used by entrepreneurs are:
In its most literal form, the term “bootstrapping” simply means to proceed without any external input. Translated into the business world, when a business is in its beginning stages, most business owners resort to using their own financial resources rather than looking elsewhere for funding. Bootstrapping resources usually include credit cards and savings accounts. Since money is often tight in the early stages of business, each penny must be spent with the utmost caution.
Family and Friends
In some cases, an entrepreneur may not have any bootstrapping resources—credit cards, bank/savings accounts, etc.—available, in which case family and friends become viable financial options. As far as investors in your business go, who better is there to call to invest than members of your own family and your friends? However, you must make it very clear to them that while their money is wholeheartedly appreciated, it is possible that you may not be able to return it. Being that they know you personally, most are not investing in your business per say, but are rather staking their investments in you. Ultimately, the investment needs to just be seen as a nice deed, with the possibility (and I use that term lightly) of a rewarding payoff should the business become successful.
These days, crowdfunding is big business. If you’re truly committed to launching a startup, then you already should know what crowdfunding is. However, as a proactive measure, I’d like to reiterate. Crowdfunding is merely presenting your idea to a large group of small-scale investors who may or may not choose to invest in you. Many crowdfunding sites—such as Kickstarter—have popped up all over the Internet, allowing users to post their business plans for the world to see. Crowdfunding has become a truly beneficial medium for startups, allowing entrepreneurs without any bootstrapping resources or family and friends to use as resources, access to startup capital.
Bootstrapping, family and friends, and crowdfunding are all fantastic options for the startup phase of a new business. However, as a business grows and becomes more serious, it is time to take the growth to the next level of funding—angel investors. Angel investors are one or more wealthy individuals who input capital into a business. This doesn’t come without a price though; most angel investors usually expect a piece of the ownership. Because the investments can range to $500,000 or more, it is best to approach angel investors with as much respect and professionalism as you can muster up.
While bank loans are often times used in the startup phase of a new business, it is more widely used once the business has already been established. Business owners apply for a bank loans for a number of reasons including equipment purchases, operating capital, or overall expansion. That is all well and good, but in order to get approved for this loan, the financial institution providing the loan is going to need to see detailed financial history on the business, usually spanning several years back. In addition to an extensive financial background check, most lending institutions will also require some sort of collateral as a form of protection against the loan.