Lack of funding for business startups makes it difficult to actualize most business ideas. Many people have business ideas that do not actualize due to lack of startup capital. As such, you need to find a source of capital for your business startup.
Startup business funds are always there, but you need to know how to get them, which could be in form of a business loan. The best option is to put all the available sources of funding for business startup on the table and then go for that is convenient.
Read more: How to find a loan for a business startup.
The following are the best sources of funding for businesses.
Bootstrapping Your Business Startup
Bootstrapping is self-funding through savings and other investments. It is a low-risk source of capital for a business startup. It is challenging for people who are starting businesses for the first time to get funding elsewhere. It is because their businesses do not have a credit score. If you have a source of income, you can set aside some savings to start a business. This is the best funding option since you do not need any collateral neither do you need a deadline to get back the money.
Crowdfunding Business Startups
In the recent past, crowdfunding has been gaining popularity, overtaking borrowing for business startups. It can be challenging to get a loan from a financial institution, thus making crowdfunding popular in funding business startups.
An entrepreneur needs to state the goals and the benefits that the business will create in the market to get people to fund the business startup. If the business' goals will have an impact on people's lives, they contribute towards the idea. To succeed in this kind of funding, you may need the help of an influencer. You can use crowdfunding platforms to reach more people who may like your idea.
Read more: Best crowdfunding platforms.
Donations from Friends and Relatives
Donations from friends and relatives is a great way to raise funds for a business startup. If you have supportive family and friends, you can consider sharing with them your business idea. However, it is always risky to mix business and relationships.
You need to draw a line between friendship and business. It is because a business can destroy your friendship, especially if the company fails. If they agree to lend you some money, make sure to have an agreement and do it in writing. Ultimately, it is a good source of funding for a startup if it done correctly.
Business Loans for Startups
A business loan is a type of credit that is advanced to businesses that are starting. The loan is advanced in a lump sum with two business days. The loans usually attract lower interest rates compared to other types of credit. The lender may require the business plan to show how the money will be used and the projected business revenues of the business.
Business accelerators or incubators mainly focus on businesses that require high startup capital. They are excellent sources of funding for business startups. Business incubators work through the sharing of resources like the technical and advisory staff between the startup business and the incubator. This goes on until the new business is independent and then it goes on its own. Most of the firms that receive this kind of funding are related to innovation and technology.
Government Grants and Subsidies
In some countries, the government provides grants and subsidies to business startups to promote self-employment. There is usually a high demand for grants. Hence, there are stringent requirements that one needs to meet. You must provide your business idea, a work plan, project business revenues, benefits that the business will provide and completed application forms. In some countries, you may be required to raise a certain percentage of the startup cost.
Read more: Top investment opportunities in Kenya.
Venture capital is an excellent source of funding for a business startup, especially if your business is a high growth startup. The investor then gets a share in the company. Venture capitalists deal with companies that have good prospects and ones that require significant capital to start.
The venture capitalists do a lot of research to find out if the business is viable. As such, they may ask you many questions and you would require doing a lot of research before presenting your business idea. Once the startup business starts to make profits, the investors will expect some returns.
Invoice financing is a good source of funding for a business. However, your business must be in operation and you must show invoices from your customers. The lender will use your invoices to determine how much he can lend, depending on the invoices. When you are advancing the funds, you need to repay the lender progressively as you continue to receive invoices.
It is a business funding for business startups that requires one to provide collateral. The collateral is not limited to equipment, and it can be any tangible asset. However, it is a risky source of funding because if you fail to repay the loan, the lender will sell the collateral to recover his money.
Through equipment financing, you can get as much funding as you may require. It only depends on if you can provide collateral of almost the same value with the loan.
If you are looking forward to starting a business and do not have enough capital, consider getting the most convenient source of funding. Before going for loans, exhaust all other kinds of financing. Before borrowing or starting your business, make sure to research thoroughly and find out the projected business revenues. Calculate and determine if the revenues will be enough to repay any borrowing.