One of the biggest obstacles every startup has to face is to raise finances. Provided that each and every business needs sufficient amounts of capital not only to initiate a particular business but also to keep it running, they tend to approach means of financing.
Securing the finances can be tough and challenging. This is due to the multiple decision-making and dealing with third party authorities. This article will guide the startups over different means and modes of financing which can be adopted in order to raise capital successfully.
This is the most convenient form of funding a startup. It is also termed as self-funding. Without having a solid plan which guarantees success, it is difficult to get financing from other means. Therefore, startups in such an event can invest in the business from their own personal expenses and savings, obtain some funds from the friends and family and contact personal acquaintances. It also entails cutting down on the major expenses which the business may incur. It is a beneficial form of financing since there is no need to comply with external formalities.
Crowdfunding is a relatively newer form of finance that startups can look forward to. It has gained popularity these days. It means that the business can acquire debt, equity or contribution from different sources. The business may show the detailed plans on the platform which will be accompanied with profit projections. Since the business plans, products and services are shown to the crowd at large, it will even work as an effective form of marketing along with the scheme of financing.
3. Angel investments
These investments are normally made by investors called ‘angel investors’. The said investors have cash in surplus which they may be eager to invest in somewhere. There might also be a group of investors who are evaluating different proposals to invest into. Such angel investors include renowned companies such as Yahoo and Google. If a business is short on capital, then this may be an effective form of investment to acquire. However, it is pertinent to note, that angel investors do not invest it completely into the business.
4. Bank loans
This is normally the first thing which comes to mind when it is about money, loans and financing. Banks are usually willing to provide financing for businesses. This may either be secured loans or unsecured loans. Furthermore, you may also receive funding loans in which the business will be required to share the plans, valuation and other details of the business vehicle under which the startup will run. Provided that there are multiple banks in the market such as Ikano, make your choice accordingly.
5. Venture capitals
Although it is really difficult to get investments from venture capital companies, these investments are normally these most lucrative of all. These are businesses which manage funds and such funds are invested in potentially successful startups. Equity injection is made in the business and as soon as there is an IPO or acquisition, the venture capital firm makes an exit. Such firms provide mentorship along with financing. As mentioned above, it is difficult to get investments from venture capital firms given that they are looking for startups who already have a stronger team and stability in the market.
6. Business incubators
Incubator programs can be approached for financing at early stages of the business. Such programs assist hundreds of businesses on an annual basis. These programs do not only provide financing but also mentorship in terms of training and tools. They even provide a developed network where the business can be conducted. The training period is normally short, not lasting more than a year, in which the startups can make good connections with the investors. With the passage of time, the trend of business incubator programs is increasing.
7. Contest winnings
This is a much undermined mode of raising finance for your business. Entrepreneurs are encouraged by business contests to come up with creative and innovative business ideas. In these competitions, the business has to either come with executable business plans or manufacture products which have the potential of selling. Winning the contests can also potentially make the business famous. There are some success stories of businesses which have obtained financing from just winning the contests.
8. Non-banking finance companies
NBFCs are finance companies but do not belong to the banking sector. Investments can be acquired through such organizations. However, these organizations work in a similar manner to a bank. They provide loans and other banking services. These lenders will have their own requirements in terms of the interest rates and the period of loan. Before accessing such loans, it is recommendable for business to evaluate the terms and conditions to determine whether the same is favourable or not.
9. Government programs
This is perhaps the most untapped resource in this day and age. Although this depends from government to government, but programs funded by the government can be accessed for better financing. Governments all across the globe normally launch fund for new startups to encourage business in the nation. All that the business has to do is submit a business plan with all the details in it. Thereafter, the financing is granted. However, these forms of financing are not sufficient if a huge amount of capital is needed. It may be sufficient for small-scale startups requiring lesser capital.
10. Other methods
There are several other methods through which financing can be raised. Nevertheless, these methods are only designed for few businesses which require a nominal amount of money. For example, credit cards can be used to finance a startup. Moreover, the potential products can be sold before they are even launched in the market. It is an effective method to raise financing. Furthermore, assets can be either sold or mortgaged if you want to get immediate capital; but however, it is a volatile and risky form of funding.