Startups are typically forced to operate on the leaner end of the spectrum – at least to begin with – which is why extra funding is often essential. The question you should be asking is: Where should the money come from? Here are some financing avenues startups can consider.
Business loans
Many startups decide to apply for business loans in the early stages of development. It’s a reasonably flexible way to inject money into your business and can be used for any purpose, including for hiring or buying equipment, marketing, research and general overheads.
As with any funding arrangement, you’ll be expected to pay the loan back – with interest – so doing your due diligence and reading the fine print is a necessary step.
It’s a competitive market for lenders, which means businesses have several options to choose from. In addition to your traditional banks, there’s also the option of going with a private lender, such as FinTech borrowing, if its offering better suits your needs.
But regardless of who you go with, you should consider your current financial position before you apply for a business loan. You should also get expert advice from a professional financial advisor who may be able to help your business succeed.
Business grants
There are also various business grants that may suit your startup. They often come with a lengthy application process and can be very competitive, however, if you’re successful it can be a gamechanger.
The government also offers a range of incentives for businesses conducting operations in certain fields, such as the Research and Development tax incentive, including low-interest loans, subsidies, tax benefits and allowances.
Crowdfunding
Crowdfunding platforms are increasingly becoming a viable financing method for businesses. Because crowdfunding is based on peer-to-peer donations, it’s not only an opportunity to raise money for your business, but can also present a great marketing opportunity to help build a loyal fanbase and brand recognition. As an example, ReadyFundGo not only helps startups and budding entrepreneurs to raise funds, but can also support you to test ideas and attract customers.
Setting up a crowdfunding campaign is as easy as creating a profile – describe your business, outline the amount of money you would like to raise and what you would like to use it for. Users who are interested in your startup can then donate and, once you’ve hit the target, the funds are yours.
As a tip, to give yourself the best chance, remember to meet your campaign goals within the set timelines.
Crowdfunding works best when you do the groundwork, set realistic expectations, monitor your campaign, and deliver on what you promised. It could be a great option to get your startup off the ground with a short-term cash injection.
Angel investors and venture capital
If none of the above options sound right for you, you could also look at angel investors or venture capitalists. Generally, they serve a similar purpose: to give budding entrepreneurs the financial means to take a business to the next level. Usually in exchange for some kind of equity in the business.
An angel investor can be a wealthy individual (or group) who has achieved a degree of success and wants to reinvest in a sector they’re interested in. More often than not, they’re also willing to put their own skin in the game and provide mentoring opportunities in addition to funding.
Venture capitalists, on the other hand, work on behalf of venture capital firms that invest other people’s money in emerging businesses.
There are some key differences on investments stages and decision times:
Angel investors
- more likely to get in on the ground floor and provide advice when the business needs it most
- tend to invest less as they draw from their own funds
- spend out of pocket so they can make things happen quickly.
Venture capitalists
- generally prefer to invest at a later stage to hedge their risk
- need to commit to a substantial investment to maximise returns
- have an obligation to perform due diligence on behalf of their investors.
The key thing when you do secure that dream elevator pitch is to be prepared. Keep in mind, investors want you to succeed, but they also sieve through dozens of pitches daily as part of their role.
Startup financing isn’t the easiest of feats. Understanding your options and using the tools at your disposal is the best way to find a solution that makes the most sense for your business, so your venture can move forward with confidence.
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