Many factors influence the transformation of an idea into a viable business. For a small business, the main one is sufficient startup funding. Have you already used all your savings and tapped into money from relatives, friends and like-minded people? These funds are enough to implement only the first steps in most cases. A critical task for a startup is to find sources of funding. Let’s talk about how to fund a startup and what tools will help raise money for your business project.
Loans
One of the fundraising ideas for a startup that comes to mind is getting money from a bank. But it may not be as easy to get a bank loan for a new project since the bank requires proof of the business’s efficiency and the solvency of the borrower. A company already operating on the market (for at least six months) is more likely to be financed since its potential can be assessed objectively. You can use targeted programs of banks meant specifically for the development of young organizations. At the same time, specific requirements are put forward for startups, including:
- Mandatory collateral in the form of valuable property (real estate, land, equipment, goods in circulation)
- Confirmation of effective entrepreneurship within 6–12 months (the longer, the better)
- Risk insurance
- Authoritative guarantee (preferably from among the bank’s clients) and others
It is recommended to apply for a loan to solve specific problems — the purchase of equipment, improvement of the product quality and others. But bear in mind that bank loans at a low rate are rare for novice startups. The increased rate compensates the bank for the high risk of non-returned funds.
An alternative is a personal loan from GetCash.com. There are many options to choose from depending on your business needs. You can apply for a loan of up to $5,000 online and get money within one business day or even the same day. Borrowers with all credit types are welcome to apply for a loan. Getting a personal loan is an effective solution for startup funding, as you can get money quickly and pay it back later. You can buy software, the necessary equipment and other essential items to realize your business idea.
Crowdfunding
Crowdfunding platforms bring together founders and investors. Startup participants describe an idea, the stage of its implementation, the required amount for the startup financing cycle (with calculations) and other significant information. Stakeholders then invest in the idea, but it is only enough to launch the project in most cases.
So, how to get startup capital? There are several types of crowdfunding:
- Charitable — It takes the form of donations, mainly applicable for non-commercial, personal projects. The backer can receive a valuable prize — a discount, the opportunity to use the product first, a free sample, etc.
- Debt-based crowdfunding — The invested amount is returned with a percentage of the project’s profit. A startup can raise loans in small amounts from an impressive number of lenders.
- Equity crowdfunding — It is an investment in exchange for a share in a startup.
When choosing a platform, carefully read its rules, check its reputation and scan its portfolio. Otherwise, you may end up with nothing.
Competitions and Grants
These are effective tools to fund new business ideas. Grants aim to develop specific areas — technological, scientific, biopharmaceutical, etc. So, how to get funding for your startup? A startup must pass a rigorous selection process, win the competition and strictly follow the rules of fund allocation. That is, a startup loses its flexibility — it’ll be impossible to change its direction abruptly. That said, the project is likely to receive recognition and impressive support.
Participation in competitions and grant acquisition is possible both with the help of commercial institutions (corporations, private universities, research centers, venture companies) and at the state level. You should be ready for strict selection and bureaucratic delays when going for the latter. That’s why you should treat the development of a business plan responsibly. Prepare for the business presentation carefully to demonstrate how valuable your project is.
Partnership With a Large Company
How to find funding for a startup by cooperating with a well-known brand? Cooperation between a startup and a corporation can bring benefits to both parties. It allows large companies to enter new markets, present fresh ideas and act more flexibly with maximum customer orientation.
Startups can then acquire a reliable and stable partner, eliminating the need to be on the lookout for funds at all times. In addition, such cooperation strengthens the reputation of a young company on the market. That said, finding a partner is a time-consuming process that requires both connections and presentation skills.
Pre-Sale
A pre-sale is yet another way to finance a startup. A buyer places a pre-order, makes an advance payment and thus funds a startup.
At the same time, it is vital to meet the expectations of the consumers who have invested money since they are the ones that will help you form a stable reputation for a new brand.
A pre-order allows you to determine the actual demand for a product, the feasibility of launching a project, forecast the shortcomings and improve the quality of the offer at an early stage.
Final Thoughts
Now, you know how to fund the startup. Note that the choice of suitable financing depends on many factors. They are the general characteristics of a startup, its field of activity and the stage of its development. At the start, your savings coupled with a loan might be sufficient. Then, as you grow and develop, you might need more investments. If you have high expectations for your project, participate in competitions, get grants and become a household name in your niche.
From the very launch of the project, you need to think about diverse ways to fund a startup. The combination of different options will allow you to cover more startup needs and achieve its goals faster — create a product that the end-user needs the most, gain a foothold in the market, scale, and so on.
