Getting the right funding for a small business is not an easy task. It is stressful to arrange money in order to launch your business, and at times it may seem impossible to get. This is why it is imperative for you as an entrepreneur to know how to fund your business. Gaining funding should start with a good business plan. If you prepare a convincing business plan, then your chances of obtaining funding are higher. Investors want to see proof that customers want your product or service. They are also willing to buy it for a price at which you could make a profit. The more solid evidence you offer of this claim, the better chance you have to get the fund.
According to the latest study, over 94% of new businesses fail during the first year of setup. Lack of funding is one of the common reasons. Money is the background of any business. That’s why businesspersons are worried about how they can finance their small setups.
There are several different options available in the market for securing business funding from outside parties, through revenue or through other resources that you can build yourself. Here are some tips for getting small business funding, no matter how much you need to start your business.
Self-funding or Bootstrapping
Bootstrapping is the practice of starting a business using your own money. By keeping start-up costs low and using profit as the primary means of investment, you can bootstrap your new business without depending on bank loans or investors.
While it might sound like an ideal and easy way to start your business, bootstrapping is not always the best option.
For the first time, entrepreneurs often have trouble getting funding without first showing some purchase and a plan for potential success.
It works best for small businesses that don’t involve heavy spending to start up. If you think bootstrapping can work for you, you should talk to a financial advisor or accountant before making the decision.
Crowdfunding is one of the new ways of funding a small business that has been gaining a lot of popularity currently. It is like taking a loan, contribution or investments from more than one person or investor at the same time. It’s like a charity fundraising. You can create an online campaign on a crowdfunding website featuring your business, product or idea and set a fundraising target. You can offer incentives or company shares, in exchange for their money.
The best advantage of crowdfunding is that it can also generate interest and can also help in marketing the product. It is also a bonus if you are not charged if there will be any demand for the product you are working on. It may also attract venture-capital investment down the line if a company has a successful campaign.
Angels are a commonly successful entrepreneur or retired company executives who invest directly in small businesses owned by others. They are leaders in their own field who not only give their experience and network of contacts but also their management knowledge. Angels tend to finance the early stages of the business with investments in the order of $25,000 to $100,000. They may give you a loan which you will have to pay under their terms and conditions. They may ask for a percentage profit or partial ownership in your business in return.
Loan from Bank
The most popular option is to take out a small business loan from a bank. This can be an easy way to get a reasonable amount of money fast, but it often requires putting your personal credit or properties on the line. Moreover, most lenders aren’t going to grant a big loan to someone who doesn’t have the income to pay it back or a set business plan to ensure that their loan is returned. Investment rates and the amount of loan depends on each institution, as well as the location and industry you’re working for. Some banks consider certain industries uncertain than others, so terms may be different depending on the type of business you have.
A venture capitalist achieves funds for investors looking for significant returns in the short term. They are more likely to invest large amounts in high-growth companies, such as $1,000,000. The first thing to keep in mind is that venture capital is not necessarily for all industrialists. You should be aware that venture capitalists are looking for technology-focused businesses and companies with high potential in sectors such as information technology, communications, and biotechnology.
Venture capitalists take a position in the company to help it carry out a promising but higher risk project. It involves giving up some ownership in your business to an external party. Venture capitalists also expect a big return on their investment, often generated when the business starts selling shares to the public. Make sure your investors have relevant experience and knowledge to your business.
The Final Thoughts
If you want to grow your business really fast, you probably need outside sources of investment. If you bootstrap and don’t get external funding for too long, you might unable to take advantage of market opportunities.
Now the main question is how do you prepare your business for fundraising? It’s better to start from the beginning with good corporate authority as it might get hard to go back later and try to exert financial correction.