Funding Your Start-up
Not certain where to begin when funding your start-up? It is not your fault. Securing loans, attracting investors with valuable data, and estimating profits is best done by people that are backed by experience.
While most businesses are self-funded, or funded with the aid of friends and family, there are other options available. Founders must understand that raising funds is not a straightforward process and usually does not happen as quickly as anticipated.
Here are five alternate methods for consideration for start-up funding:
Angel Financing: Some individuals invest in early-stage companies in exchange for equity ownership interest. Uber, WhatsApp, and Facebook are success stories we are all familiar with and have spurred investors to look for opportunities in the hope of getting outsized returns. Average angel investment is between $25,000 and $100,000.
Crowdfunding: In recent years, crowdfunding website have become a popular resource for certain small businesses. Crowdfunding campaigns are simple to set-up. Profile set-up on a site, telling a compelling story about your products, service, or company, and a meaningful outcome for donations are all that are needed. In certain cases, start-ups have raises thousands and occasionally millions of dollars.
Small Business Credit Cards: Certain credit card issuers specifically cater to small businesses and often offer familiar rewards like cash back and airline mileage. This option is often tied to the founder’s personal credit score and credit history, along with a personal guarantee. Any defaults or past due payments on the business credit card would therefore affect personal credit ratings. Capital One, Wells Fargo, Chase, Bank of America, and American Express are well-known small business lenders and often have low or no interest introductory offers, however, this option can also have interest rates on unpaid balances that are quite high. One alternative is Brex, a small business card for early-stage technology companies.
Small Business Loans: Traditional and alternative lenders offer small business loans in many forms:
Small business lines of credit
Accounts receivable financing
Working capital loans
Small business term loans
SBA small business loans
Equipment loans
To make certain the business loan makes sense for your business, you will need to analyze the lender’s terms and compare them with terms available from other lenders.
No matter how great your idea is, understanding funding and how to best use that funding is essential to early, and long-term success.