Starting a business is never easy. While you may have a great business idea that you are passionate about, transforming the business idea into an actual business will take much more than you think. For one, you will need to get the necessary capital.
This will help you lease a suitable business premise, buy equipment, furniture, and fittings, procure inventory, hire staff, and market the business. Branding is also going to cost money, and this is where some of the startup capital will go.
Once you start running the business, there are many sources of capital you can consider. For instance, you can approach your broker at companies such as EquipmentLoansOnline to help secure finance for business purchases.
Sources of Startup Capital
Every single year, millions of businesses are usually started around the world. However, only a few of these businesses survive to the second year. In the United States, it is estimated that 94% of startups never survive past their first year of operation.
The main reason behind this shocking failure rate is lack of capital. If you are planning to start a business, therefore, you need to think about funding. You will be happy to know that there are many sources of startup funding. Below are the top sources of startup capital you can consider:
1. Angel Investors
An angel investor is a high net worth individual with a lot of money to spend. Angel investors are often grateful for the opportunities they enjoyed in their journey to financial freedom, and they want to give back to society.
They usually offer funding to startups and small businesses. In return, they get a small stake in the company. The beauty of getting funded by an angel investor is that most of these investors usually offer business advice in addition to capital injection.
Another advantage is that your business will get an actual market valuation. For instance, if you get $100,000 for a 20% stake, your startup will be valued at $500,000. The main challenge with this type of funding is getting the attention or audience of angel investors.
2. Personal Savings
Getting financing from third parties when you’re just starting up is a big challenge. After all, there are millions of business owners who are seeking funding, and many of them are already well-established. Your only funding option, therefore, may be to use your own savings.
This is commonly referred to as bootstrapping. You will need to work on your business for long hours without pay. The little money you have can be used to pay for web design, hosting, branding, marketing, and other essential expenses. You may have to use your home garage as your business premise and office as you use your savings to grow your business.
If you have an amazing business idea, you can try selling the idea to your peers. There are many people who would like to get a piece of your business at the very beginning before you get any funding from angel investors and venture capitalists. Just use one of the many crowdfunding platforms to attract capital into your business.
4. Venture Capitalists
A venture capitalist offers funding in exchange for a stake in the company. They usually invest in high-risk, high potential businesses. However, entrepreneurs should be wary of venture capitalists.
VCs who ask for a significant stake in the company but offer little capital should be avoided. You may want to consider getting in touch with several venture capitalists and compare their offers to ensure you find the best deal possible.
Never give up control of your business as you can easily be forced out of your own company if the venture capitalist has over 50% stake. The good news is that there are many venture capitalists out there and they have almost unlimited financial resources they want to invest in startups.
5. Bank Loans
This is one of the most common funding options for startups. Most entrepreneurs usually have to take out a personal bank loan to fund their business. Once the business is off the ground and has proper books of accounts, it will be much easier to get working capital financing from banks. Most lenders often require a business proposal and proper books of accounts before approving any finance application.
6. Family and Friends
The people who love you would love to support your business idea. You only need to approach your close relatives and friends and pitch to them your business idea. If they like the idea, they will not hesitate to invest part of their savings in the business.
This can provide you with enough money to take your business to the next level. Obviously, you will need to allocate a piece of the company to the friends and relatives who fund your business. Alternatively, the money can be paid back with interest at a later date, when your business is already running profitably.
7. Business Incubators
Most cities around the country have business accelerators or incubators. If you have a business idea, you can decide to set up and grow the business in these incubators. In addition to getting a place to work in, you will also get financial incentives and guidance from various professionals and experienced entrepreneurs.
The key to success when seeking startup finance lies in having a great business plan. A tangible or digital business plan can tell potential investors and financiers everything about what you are planning to achieve.
Therefore, you should invest a good amount of time to learn how to write a business plan. You should know the business plan in and out. If you are asked a question about the plan, you should not refer to the business proposal; everything should be at your fingertips.
While lack of capital financing may be to blame for the collapse of startups, too much capital is also known to be problematic. You do not want your business to be overvalued too early in its life because attracting capital, later on, will be challenging.