Finding a Startup Business Financing to get your business off the ground can be challenging for entrepreneurs and startup founders, regardless of the current economic climate. Whether you’re looking for money to launch your startup business, expand your business, or keep the company afloat during tough times, you will need to have a well-thought-out strategy for making decisions about financing options for your business.
Securing funds is never easy, but it doesn’t have to be as hard as many people make it out to be. Entrepreneurs and small business owners who strategize well and in advance can often find the money they need for growth and expansion faster and more easily than competitors who have a more haphazard approach to getting funding.
Below is a list of seven effective startup business financing techniques that have helped thousands of businesses get funding at low rates of interest.
This is a creative method of financing whereby a company can sell its receivables at a discounted rate in order to get the required cash up front. This method can be effectively used by businesses that have relatively poor credit to raise the funding they need without having to approach a bank for a loan.
Apparel manufacturers and other businesses where the gap between an order being fulfilled and the payment being made is very long also make use of this financing method. This method is effective in a time of need but is not sustainable for your long-term funding requirements.
2. Credit Card:
Using a credit card to fund your startup can be risky, as it may destroy your credit score if you ever fall behind on payments. Moreover, if you pay just the minimum amount required every month, you may end up in so much debt that it’ll take you years to get back out. However, if you can use it sparingly and responsibly, a credit card can be a great way to shore up your cash flow in the short term without paying huge interest on the borrowed amount.
3. Bank Loan:
You can also apply for a bank loan at some of the major banking institutions such as the Bank of America and J.P. Morgan Chase. In recent years, lending standards have gotten quite stringent, and the time it will take for you to get the money in your hands can be very long.
However, banks are one of the oldest and most reliable ways to get startup business financing, and some of them have started earmarking funds for small businesses. Hence, trying to get a traditional bank loan is definitely worth a shot.
4. Crowd Funding:
Low-cost, interesting, and creative projects can be funded through popular crowd-funding sites such as Kickstarter. For this, you’ll have to set a goal on the website, stating how much money you will need for the project and within what time you’ll be needing this money.
Then, people who are interested in this project will be able to pledge money through Kickstarter. However, this method is typically best suited to businesses in the entertainment or creative sectors, where creators can build a fan-base and then ask them for financial support.
You can also use online platforms such as the Thrust Fund to pledge a portion of your future income or earnings in return for an upfront loan. For instance, like Kjerstin Erickson and many others, you can pledge 5-6 percent of your future lifetime earnings in return for a loan of a few hundred thousand USD. This is not a fool-proof startup business financing strategy for the long term, however, as the legality and enforceability of these contracts are yet to be established and tested.
6. Angel Investor:
Many entrepreneurs over the years have found funding by pitching to angel investors for startup business financing. For pitch successfully to such an investor, you must be succinct, avoid hyperbole and jargon, and have a comprehensive exit strategy in place before you begin.
To generate interest from angel investors, it is best to have some experienced members on your team, highlight the uniqueness and originality of your business, and have deep and comprehensive knowledge about your domain or industry.
If you don’t have a strong credit history or any collaterals to offer lenders, you can try getting a microloan of less than $35,000. These microloans aren’t usually offered by banks, so you’ll need to find a micro-lender, which may be a fin-tech company or a non-profit organization.
As the amount of money being lent is so small, micro-lenders typically ask for less paperwork and documentation than traditional banks. Their underwriting criteria are also usually more flexible than average, although the interest rates they charge can be slightly higher than that of banks.
Mentioned above are some of the most common ways in which entrepreneurs and small business owners secure startup business financing for their enterprises, particularly if they don’t have a track record as a successful business-person. Once you have some experience under your belt, securing funds for your business will become easier than before.