When it comes to raising capital, being creative and resourceful are essential qualities that entrepreneurs must-have. In a world that’s becoming increasingly saturated by businesses in every sector, investors and lenders are a lot more careful as to where they park their capital. Regardless of what product/service or business model you want to start, here are seven ways to secure funding that can help you take it from an idea into a reality.
Microloans are specifically designed for non-profit organizations and usually offer some benefits that traditional lenders don’t, such as pro bono consultations and training programs. Microloans are typically $50,000 or less, but some businesses that are deemed promising and creditworthy enough may be awarded higher loan amounts. If your business is involved in a worthy cause that’s not profit-centered, such as helping disadvantaged communities through education, a microloan may suit you.
Private Business Loans
Companies are now making it easier for startups to access the business funding they need, including business loans for bad credit or no credit, by completely revamping the outdated loan process. By using cutting-edge algorithms that can process multiple key factors to determine the creditworthiness of an applicant, these private lenders are able to approve qualified applications in a couple of days rather than weeks.
Loans Sourced From Personal Connections
No one wants to see you succeed more than your family and close friends. These people have a vested interest in helping you get your startup off the ground. If your business idea doesn’t take a few thousand dollars to start, family and friends loans are a viable solution to bridge the financial gap. That being said, be sure to treat the money borrowed from family and friends as you would money from a bank or private lender. Draft an agreement that states your intention to pay back the amount borrowed and other terms and conditions that both parties pre-agreed upon.
Startup competitions are an actual legitimate event, albeit sounding sketchy for those who have yet to enter one much less hear about it until now. Many of these contests are geared towards finding creative and modern solutions to prevailing issues, such as climate change, rising populations, and illegal wildlife trade. Aside from the prize money, which in many contests can reach sizeable amounts, these competitions also offer plenty of opportunities to network with other like-minded business individuals and groups.
Purchase Order Financing
For businesses that are already up and running and have orders coming in, a purchase order financing structure can help keep you financially afloat during occasional dips in sales and revenue or finance a larger-than-usual order from a new business partner/client. Purchase order financing is a common funding strategy in industries that are capital-intensive, such as manufactured goods. The higher the loan applicant’s potential profit margin is, the better the chances of getting approved for this type of loan.
There are quite a few crowdfunding platforms today, the most popular being Kickstarter and Indiegogo. However, new players, including RocketHub and Fundable, are slowly gaining market share. Crowdfunding, as the name implies, sources funding from the public. Compared to traditional funding sources, crowdfunding offers the benefits of being simpler to set up, earns you early adopters and loyal supporters, and doubles as a marketing stunt and media exposure for your relatively nascent brand.
Although grant amounts are usually lower compared to a traditional bank loan, federal- or state-issued grants are still worth checking out. Grants are often granted for a specific purpose, such as buying initial inventory or equipment/machinery. the issue with grants is that it is a highly competitive market for applicants. Moreover, it’s not the most ideal option for startups that need the money right away as getting approved for a grant can take a relatively long period of time.
Every path to funding a business has its respective pros and cons. A deep understanding of your business, particularly its cashflow, is key to choosing a financing structure or funding source that aligns with your ability to repay it over time. As a final precaution, avoid giving away equity in your company if possible. You want to retain as much control of your company as you can since you may need to raise more capital later on.