Startup financing: 8 key funding options for your company
Finance plays a significant role in the success of a startup. Without sufficient funding, it is impossible to start and grow a business. When it comes to financing a business, there are various options that you can choose, such as utilizing your own savings or borrowing money from family and friends. However, if you do not have these options to fund your business, then there are other options available. Let’s explore eight funding options to consider starting a business.
Invoice financing
Invoice financing is another viable option to secure funds for a startup. With invoice financing, a service provider fronts you the money on your outstanding accounts receivables using invoice finance, also known as factoring, which you reimburse once the customer settles the bill. As a result, your firm will have the necessary cash flow to continue operating while you wait for consumers to pay their outstanding invoices.
Business loans
There are multiple loan choices out there for a small and growing business, and two of the major loan categories are as follows:
1. Secured loans
A secured loan is backed by a valuable asset, such as a house or a car. The lender holds the deed or title of these assets until the loan is paid in full. Other objects such as stocks, bonds, and personal property can also be used to obtain a secured loan. Most individuals prefer borrowing large sums of money through secured loans. A lender will only lend a considerable sum of money if it is guaranteed to be repaid. Putting your home on the line ensures that you will do everything possible to repay the debt. However, if you are unable to pay back a secured loan, you risk losing your asset.
2. Unsecured loans
Unsecured loans are the total opposites of secured loans, and they can consist of things like student loans and credit cards. For lenders, these types of loans can be riskier because there is no asset to recover if you cannot pay. Due to this, the interest rates are higher. If your request for unsecured credit gets rejected, you may still be able to obtain secured loans. But as mentioned before, you will need something of value to leverage as collateral.
Crowdfunding
Crowdfunding is a method of raising finances for a business from a large group of people known as crowd funders. Even though crowd funders invest capital into a business, they cannot be called investors, as they don’t receive ownership of the business or any financial return on their investments. In return for their investments, crow funders expect to receive rewards in the form of credits, discounts on the products/services you sell and other special privileges. Below are a few steps to help you start a crowdfunding campaign:
- Pick a renowned crowdfunding platform such as ‘Indiegogo.’
- Share your ideas with potential funders
- Offer compelling rewards
- Determine and set a funding goal
- Promote your campaign
- Fulfil your promises
Mutual investment funds
Mutual investment funds or equity income funds consist of a number of income investments or dividend-paying stocks. These mutual funds are created to provide investors with benefits that they would not otherwise have. Similar to other mutual funds, equity income funds offer diversity to investors by making them less vulnerable to the risks associated with owning individual stocks. For individuals looking to invest in UK equity income funds, there are a lot of options to choose from, like ‘Gam UK’, or ‘TB Evenlode Income’.
Grants
Governments and other private institutions offer grants to individuals willing to start up their businesses. The best place to seek government-related grants is your Local Enterprise Partnership (LEP), which’s primary purpose is to support new businesses in their designated area. Furthermore, with a bit of research, you can also look for grants online on platforms such as ‘Grants.gov’, just be careful when looking online to avoid getting scammed.
Angel investors
Did you know that in 2010, Uber raised around £1.25 million for its seed-stage company with the help of Angel Investors?
Angel Investors are high-net individuals who financially support business startups. When you take out a small-business loan, whether your business succeeds, you have no choice but to pay it back. However, Angel Investors follow a separate set of guidelines. They give you the money you need to get started in exchange for a share of the company’s ownership. If your business succeeds, you will both benefit financially. However, if the company fails, the employees will be laid off. These investors often also provide valuable information and ideas to a business. To look for Angel Investors, you can search for investment networks on the internet.
Venture capital
Another suitable way to secure funding for your startup is to pitch your idea to venture capital firms in exchange for financial backing and equity (shareholding) in the company. Doing so offers the added benefit of potentially attracting investors who can provide guidance and expertise. Additionally, a venture capital firm can provide active support in several essential areas, including legal, tax, and personnel problems, which is very important at this stage in a company’s growth. However, one of the drawbacks of obtaining venture capital is the industry’s competitive nature, which can make convincing corporations to fund your business.
Merchant cash advances
When it comes to affordability and structure, a merchant cash advance is the polar opposite of a small company loan. Through merchant advances, you can quickly secure funding, however, they are usually used as a last resort because of their high cost. Multiple leading merchant service providers offer this funding option, so do some research and explore your options.
Conclusion
Financing a startup can be extremely challenging and draining. Motivation is one of the most important factors to consider during this procedure. As a startup, rejection is an inevitable part of the process. It can be challenging to stay motivated during testing times, but it is essential to your success. If one funding strategy doesn’t work, then move on to the other one; rather than getting discouraged and view rejection as a necessary part of the process. However, be careful and do research before making any decision, as all investments are risky.
