Top ways to fund your Startup or Small Business
One of the most critical factors that determines the success of a small business is funds available for growth. New businesses and start-up ventures essentially require funds for various functions such as hiring new employees, setting up an office, automating it and so on. In such a scenario, selecting a method that helps them sustain the business and also create profits is of utmost importance.
There may be several loans available in the market and there may be venture capitalists willing to invest in a new business. However, deciding the most viable method requires the business owners to think strategically and plan beforehand.
Some of the top ways for startups and small businesses to get funding, that have been tried and tested by entrepreneurs all across the world, are as follows:
1. Bank Loans: This is the most common method of getting money to run a business. The benefit is that banks offer corporate loans at lower interest rates and also help the businesses in sustaining their growth. However, the flipside of this method is that at times, if the business is unable to make profits and return the loans on time, it has legal implications, which may hinder the business and affect the team members.
2. Grants: Scientific and research oriented businesses may approach government in their respective country for grants. The benefit of this funding method is that the government offers the money at lower interest rates and offers support in future. The flipside is that if the company is unable to return the funds on time, the legal implications may be stringent.
3. Getting money from friends and family members: Gone are the days of single income households. Especially if the lady is the house is working as well, it is always convenient for family members to share their investments and help each other in starting and running new businesses. The flipside of this method however is that at times, it might create personal tensions amongst family members and may also lead to unexpected misunderstandings. Borrowing from friends, relatives and parents has also increased as it is one of the first things that business owners think of when they need to raise funds quickly, and doesn’t really require any lengthy paperwork.
4. Venture Capitalists: This method is suitable for businesses that have crossed the initial startup stage and are already earning some revenues. The benefit is that venture capitalists offer generous amounts of money to help businesses whereas the flipside is that the money needs to be returned within a given time period. If this does not happen, the capitalists no longer support the funding.
5. Angel Investors: Google, Yahoo and Costco are popular Companies that have used this method to start business and sustain well. Angel investors provide strategic support as well, which is beneficial. The flipside is that they expect a high return on their investment, about 20% to 25%, which may not happen all the time with startups.
6. Online Lenders: OnDeck and Kabbage are two online services who lend money and have gained quick popularity amongst entrepreneurs. The advantage of this method is that it is fast and the money is in your account within a few days. However, the flipside is that since it is done online, at times, the security breach may cause leaking of confidential information. Nonetheless, U.S. Treasury Secretary Larry Summers has been quoted that he expects online lenders to eventually reach more than 70 percent of small businesses.
7. Crowdfunding: Kickstarter and Indiegogo are two popular Crowdfunding websites that pool funds from multiple small investors and pass it on to startups that require the cash. There is also an equity based model for crowdfunding in which businesses give up a bit of their shares in order to help the startup.
8. Equity Funding: Also known as Stock Funding, this method consists of mutual funds that essentially invest in stocks. As the Market value increases, the interest earned is good and these funds can be used well. The flipside is that it depends on the stock market situation for this funding to sustain in the long run.
Debt Funding: This method is ideally an investment pool consisting of mutual funds or exchange traded funds that are used to build and sustain startups. The investments are fixed income investments and may be in the form of short-term or long-term bonds or securitized products. The benefit of using this method is that it preserves capital and generates income which is very useful. The flipside is that the returns are not guaranteed when the market goes down A