How to fund an upstart business, or how to finance your first business often represents an entrepreneur’s main headache to cure. You have the greatest business idea, but little to no funding. So now, what do you do?
Welcome to the “Lonely Entrepreneur’s Club”! Things sure can seem hopeless if you weren’t born with a silver spoon in your mouth.
But is it that hopeless?
Don’t allow lack of funds for your upstart business to ruin your plans
To fund an upstart business is not that hard, if you just know how!
Each year hundreds of entrepreneurs try their hand at running a new business. While you may have a winning idea, not having enough funding can sideline your plans. Funding a startup is one of the biggest challenges you will ever face. How to finance a business is also one of the most asked questions new entrepreneurs have!
Luckily, there are some ways to get around this obstacle and gain enough investment capital to see your dreams come true. Lets’ dive deeper into upstart funding and learn several ways that you can bring your plans to life.
Why Is Upstart Business Funding So Difficult?
As we have already learned, getting the proper funding for a startup is very difficult, to say the least. Below are a few reasons why anyone with a great idea may run into roadblocks while on the journey to financing a business. These are just a few of the problems that you may face but with the right determination and information, you can overcome them.
- Not enough experience in the industry to convince someone to fund your upstart business.
- You don’t have enough money of your own to invest.
- Your business plan tells your story to your funding resources. Perhaps your upstart business plan is not up to standards, not worthy of financing?
Your First Company Is Always The Hardest To Fund!
As an entrepreneur and perhaps starting out with no experience in your chosen industry, you will find it harder to locate funding. You will have to work hard to prove to lenders that their investment is a wise one.
After you have successfully run your first company, the second one will be much easier to fund. If your first startup was a success, then you have proven yourself in the eyes of others. Below are a few reasons why a second startup business funding is much easier to achieve.
- Your first business was a proven success.
- The second business is in the same industry as your first.
- An established business line of credit is already in place.
- You will have gained experience running a successful company.
- No failed business in the recent past.
- You don’t have a bad credit history.
Where Can You Find Funding for your upstart business?
Now that we have learned some of the obstacles of locating funding for a startup, let’s learn some ways to get around those hurdles.
Below you will find a comprehensive list of funding sources that can help you gain the cash flow you need to get off the ground and running!
The first funding source that you may want to consider is bootstrapping. Basically, bootstrapping is funding your startup with your own money. Many startup owners place money in their savings for months and even years before going forward with their idea.
This gives them enough cash to get the company up and running without the need for outside help. While saving up a large amount of cash can seem difficult, it will give you more control over your business. You will also not have to worry about paying the money back to investors that often come with high interest rates, or even give up part ownership in your company.
But keep in mind, when you finance your first business with your own capital, it puts ALL the financial burden and liabilities on you only.
2. Friends and Family
Are you excited and passionate about your startup idea but lack the funds to get it off the ground? If so, then why not turn to those you love for a little help?
A great way to procure startup capital is to get your friends and family involved. There are several different ways that you can approach this upstart business funding opportunity.
a) First, you can ask your friends and family for a no strings attach donation to help you get the ball rolling on your startup. While this is a great way to gather funding, you probably won’t get much capital using this method.
b) Second, you can ask for a personal loan that you will pay back over time with interest. This is a great way to get some much-needed capital while giving your friends and family peace of mind knowing they will get their money back.
c) Third, you could give whoever gives you capital a share in the startup. This will make them feel more like part of the project and they just might stand to make some serious money in return.
You can visit this link to learn some tips that will help you ask your friends and family for upstart business funding the right way.
One of the best ways to help your startup idea see the light of day is by getting involved with a startup incubator. But what is a startup incubator and how can it help you achieve funding you may be asking?
A startup incubator is a collaborative project composed of different people with different skills sets that work to help you get your startup off the ground.
Incubators will help you secure seed money, help with any questions you may have and provide a wide range of support that is vital to your success. They do not finance your business, but they can get the ball rolling on your idea, steering you to the right funding source.
Loans are another great way to secure some startup capital for your company. But remember that all loans are not right for someone just starting out. Try to avoid loans with high interest rates and ones that penalize you for paying it back too soon. These types of loans are called “hard money” loans.
But, a “hard money” loan may be an option for fledgling entrepreneurs with bad credit. Just make sure your idea is a solid recipe for future business success!
ATTN: Franchisees: “Hard money” lenders are heavily presented as a third-party lender for starting a franchise business.
There are many ways that you can take out a loan. For example, if you own a home, you may take out a homeowner equity line of credit. This is a great way to get the money you need. But keep in mind, if you don’t repay this money, you may lose your home if it goes into foreclosure.
A less risk loan would be a personal loan from a friend or family member.
Additionally, you may qualify for a small business loan that is provided by your local bank or credit union. Most banks and credit unions would be happy to work with you and provide excellent loan terms with often low interest rates.
A great resource for information on small business loans is the SBA which has a wealth of information on their website. They will even help match you with a lender and provide you will a guiding hand during the process.
This is a really big funding source that has become hugely popular over the last few years. Crowdfunding has changed the way we raise capital and it provides opportunities that were not possible just 10 years ago.
Crowdfunding allows you to gather money from many different people who want to see your product or service come to life. The money you raise from crowdfunding normally does not have to be paid back. This is a great way to raise money quickly without having to worry about high interest rates.
However, many startups that run crowdfunding campaigns to raise money offer those that give money something in return. For example, you may give those that donate exclusive access to certain products before they are available to the general public. You may also give discounts to those who donate a certain amount of cash.
When it comes to crowdfunding you will be happy to find that there are dozens of them, and more are popping up every month. While you should check out every crowdfunding opportunity out there, you should stick with platforms that are well-trusted. Some of the crowdfunding websites that you should consider include Kickstarter, Crowdfunder, and Indiegogo. For more information, please read my comprehensive article on crowdfunding.
6. Small Business Grants
Did you know that you may be eligible for a small business grant that you don’t have to pay back?
That’s right! There are a few small business grants that can help you fund your startup and it is totally free to apply for them! The federal government has over 1000 different types of grants that cover a wide range of industries.
To learn more about how you can secure a grant from the government, head on over to their website Grants.gov. Here you will find a searchable database of grants that is easier than ever to navigate. In addition to this website, you can find resources on grants at the U.S. Small Business Administration or more commonly referred to as the SBA.
7. Credit Cards
Another way to finance your startup business is by using your private credit card initially or applying for a business credit card. While you should not rely solely on credit cards, they can help fill in some of the funding gaps that you may have.
Look for business credit cards that have a low interest rate. High interest cards can put you deeper in debt which is not something you want to start out with. Also, you want to avoid cards that require you to pay an annual fee.
To learn more about some of the best credit cards for small business, please check out this link.
8. Angel Investors
You may have heard of the term angel investors before but have no idea what it means. Angel investors are business-owners and other successful people that have large amounts of capital available.
They often invest in startup companies to give the entrepreneur a leg up. These investors are not loaning you the capital to start a company but rather investing in your startup.
In return, you will need to give them a major share-hold in your company. Some major successful startups that have used angel investors include Facebook and Uber just to name a few. To learn more about angel investors, please check out this link.
9. Equipment Financing
If you have a great idea for a startup but you don’t have enough capital to purchase new equipment, don’t let it stop you from following your dreams!
There are many companies that specialize in equipment financing. If you have decent credit and a little capital to put down, they will let you pay for the equipment over time.
This will allow you to keep more of your startup capital liquid so that you can use it for other things like payroll or rent.
A unique but time-tested way to get the things you need for your startup is bartering. By exchanging your services for items that you need, it will make funding your company much easier.
For example, say your company deals with IT solutions. You could possibly provide IT support for the entire office building in exchange for free or reduced rent. Working out deals like this with others can help both parties.
There are literally hundreds of ways that you can barter your way into the things you need to make your startup a reality.
11. Liquidating Assets
If you own investment real estate or any other type of asset that you can dare to live without, it might be a good source of capital.
By liquidating some of your assets, you may be able to raise enough money to put into your startup. But keep in mind, it is not a good idea to sell the home you live in or any other investment that you need to live off.
If you own stock or have money invested in bonds, you can also liquidate them for some quick cash to fund your idea.
However, I’d suggest you avoid dipping into your retirement savings (401k Business Financing). Losing your retirement savings on a failed business venture can set you back for many years.
12. Seller Financing (Seller Carry-back)
One often overlooked method to fund a business is asking for seller financing. If your own upstart is buying an existing business, then by any means, try to get a low-interest seller-loan to package your deal!
How I financed one business
That particular service-business was purchased by a combination of funding sources to finance the business:
1) Bootstrapping: Injecting some money from my own savings.
2) Taking out a low-interest equity-loan on my house.
3) Seller’s low interest-rate carry-back loan.
4) Low interest equipment loan.
2 1/2 years later I had that business flipped from a badly in-shape fixer to a hugely profitable business!
The net profit of the business sales transaction: $306,000! Not a bad reward for two and a half years of street-smart business practices.
You need to be a “Doer & Shaker” – not a “Procrastinator”
As you can see, there are a ton of funding resources to finance a business out there. This is great news for those looking to build their dream of owning an awesome startup company.
If you have a great idea and a solid business plan, there is nothing that can stop you from achieving greatness. So, get out there and get the ball rolling today.
Without moving forward, you will never really know what your startup idea is capable of. Who knows, you just might have the next greatest idea!
Comments or questions? You can reach me here.