13 Startup Business Financing Tips You Can Use To Grow Your Business
Many startups need funding for prototypes, paying the first employees, and acquiring inventory.
Let’s face it; funding a startup is not always easy. In fact, it can be frustrating or seem impossible at first. But that should never stop you from taking a leap.
There are several sources of funding, and all you need is to be creative to choose the best option.
If you are looking for start up business financing, here are 13 financing tips that you should keep in mind.
1. Self-Funding
This is probably the easiest, wisest, and safest source of funding for a small business startup. This type of financing requires you to save money for a period of time and then use it to finance your startup.
However, there is one problem with this type of financing: you’re limited by the amount of money you can save.
Some startup founders take this type of financing a step further and obtain money out of their retirement plans, insurance policies, or properties and use it to fund their businesses.
As we mentioned, using your savings to fund a business is the most conservative and safest way to fund a business.
It’s a great idea if you can get a loan against your savings. However, you should be careful and ensure you consult a financial advisor if you plan to sell your property, take a retirement loan or an insurance loan to finance your business.
Funding a business with these types of loans is very risky.
Why?
Well, if your business turns on its head, you stand to lose your insurance, home, or retirement benefits.
2. Angel Investors
Angel investors! Who are they?
These are private individuals or small groups of people who invest in companies. Most angel investors make equity investments.
An angel investor will provide you with money and expertise and will also give you advice on how to run and grow your startup. Are you wondering how to get investors for a startup?
Getting an angel investor can be hard work. To make the process easy, ensure you have a good business plan and effective growth strategies.
Looking for an angel investor can help extend your workflow capital and deal with cash-flow problems.
You should, however, ensure you work with an angel investor who will provide you with expertise along with funding.
You should also ensure you have an attorney by your side when drafting and negotiating angel investor agreements.
3. Credit Cards
This is another effective source of funding for a small business. Credit cards can help fund your startup and increase your cash flow.
The good thing about this type of financing is that it takes a short time to get a business credit card, not to mention that minimum payments are relatively low.
It’s an attractive option that you can use to pay your suppliers and fund your day to day operations.
However, an obvious problem with credit cards is that the amount you get depends on your credit score. Falling behind on a payment could also damage your credit score, and this can affect your business.
Be careful and ensure you never overspend or spend more than you can afford.
You should also ensure everything you do with your plastic helps you maintain a good credit score.
4. Microloan Programs
You can also get funding for small business startup from a microloan program.
Loans from microloan programs have low-interest rates and come with favourable terms. The programs also provide training and assistance to business owners, and this helps increase their chances of success.
Using a loan from a microloan program is one of the best ways to fund your startup.
Before you apply for a loan, however, make sure you know everything there is to know about a particular microloan program.
5. Friends and Family
Many entrepreneurs are now getting business loans from their friends and families. Some are even asking their friends and families to invest in their ventures.
You can also get funding for small business startup from friends and family. Ask your friends and family to invest in your company; this means that you’ll sell them a part of your company.
You can also ask them to give you a business loan.
But asking your friends and family to finance your startup comes with two main problems.
The first one is that if your startup fails or money is lost, you risk destroying the relationship with your family and friends. The second is that your friends and family will want to become part of the decision making process.
To avoid these problems, make sure you take some time and educate your friends and family about the risks of investing in your startup.
You should also ensure that all agreements are in writing.
6. Bank Loans
Banks loans are what most entrepreneurs turn to for funding business startups.
In this type of financing, your bank will give you a fixed amount of money, which you’ll repay over a period of several years that you agree upon.
There is only one problem with this type of financing: the loan application process is complex, and you need a good track record and substantial assets to get a loan from a bank.
7. Crowdfunding
You can get funds for a small business startup from crowdfunding platform.
You should, however, note that these platforms are mostly used by internet-based startups. If your startup is web-based, therefore, you can use crowdfunding to finance your business.
There are various crowdfunding platforms on the internet today. Research well and identify the one that meets your needs before posting your project.
Investments in this platforms can be debt rewards or equity-based.
As you can tell, crowdfunding is a great way to fund a business. You should, however, note that the amount you get from crowdfunding platforms depends on how you pitch your business.
For this reason, you should develop a strategy that will help you come up with an excellent pitch.
You should also do your homework and ensure the platform you’re using matches your needs and wants.
8. Bootstrapping
What is bootstrapping? This refers to the act of starting or running a business with little money or no money at all.
This type of financing requires you invest into the business all the money you earn from clients. Like any other financing method, bootstrapping has its pros and cons.
Bootstrapping is safe and can help you handle your financial constraints, if done correctly.
There’s no denying that bootstrapping is one of the greatest ways to get a startup going. In fact, every startup should consider bootstrapping.
However, you should ensure you know how to bootstrap before you try it out on your startup. This will help you avoid some of the more common mistakes.
9. Start a Side Hustle
Can’t get a loan, a partner, or an investor? Starting a side hustle can also help you finance your startup. You can become a freelancer or find a part-time job.
This will help you make extra money that you can use to finance your startup.
There is one problem with this type of financing: your attention will be divided, and this will make it difficult for you grow your startup.
Make sure the side hustle you choose does not interfere with your main thing: your startup.
10. Factoring as Method of Start up Business Financing
Most people think that factoring is a new concept, but it’s not. It’s been around for a while; it’s just that most people came to know about it just a few years ago.
What is factoring?
In this type of financing, a factoring company will offer you some money on the pending invoices.
Factoring will help improve your cash flow and make it easy for you to acquire new clients.
11. Grants
If your startup is involved in science or a ground-breaking invention, you can apply for government grants.
You should, however, ensure you read the terms and conditions before you apply for a grant.
Some grant programs will require you to hand over your intellectual properties.
12. Taking on a Partner Makes Funding a Startup Easier
Adding a partner to your business can become a source of funding. A knowledgeable partner can help fund the business and can offer advice to help you run the company smoothly.
The downside of taking on a partner is that decision making will be slower.
Before you make someone a partner, make sure they know their role and how to do business. This will help make process simple and better for everyone involved.
13. Venture Capital
If you’re just starting out, you can look for a venture capital firm. These firms provide early-stage funding to startups.
You should, however, note that most venture capital firms will approach you with large investments later so that they can be in control.
It’s important to ensure you take some time and learn more about a venture capital firm before you accept funds from them.
This will help you know what you’re getting into and figure out if the firm cares about your interests or not.
Conclusion
Startup business financing is not always easy, but as you can see there are many ways to secure funding.
To know which financing option is best for you, you’ll need to do some research, and create a strong business plan.
This will help you identify your needs and make it easier for you choose the financing option that complements your business needs.
And, if you’re looking for more information on growing your business, make sure to check out our blog.
