Brilliant business ideas are very rare, but when they do come, they have the potential to change the world. Every modern-day comfort that we’re enjoying right now: the internet, the computer that you’re using right now, that smartphone in your pocket…they all came from a single spark of genius.
The problem is great ideas don’t care about your financial state. They can come late at night, waking you up in a cold sweat, even if you have zero savings to spare. Don’t worry, though. We want that idea to come into reality, so we’re going to talk about how to finance it. Here are six tried-and-tested ways:
1. Apply for a grant
There are different government institutions and organizations that provide grants for promising business ideas. In the United States, there’s the National Association for the Self-Employed (or NASE), the Small Business Innovation Research (or SBIR), and we’re pretty sure there are local-based organizations in your state as well. The process is probably not as fast as applying for personal loans online, and the application process can get really competitive, but it’s worth a shot to apply anyway.
2. Get crowdfunded
Crowdfunding is a very modern concept. It is the method of signing up for a crowdfunding platform (like Kickstarter or GoFundMe) where other people can donate money towards your cause until you reach a financial goal.
In fact, according to Startups, 78% crowdfunding campaigns reach their goal and attain success and it is projected that by 2025, crowdfunding will be able to raise $300 billion dollars. Can you imagine what you can do with that sort of money? Or just being able to reach your milestone through hard work, perseverance, and intense digital marketing campaigns?
3. Convince an angel investor.
Unlike crowdfunding, “angel investing” already has a long history. In a nutshell, an angel investor is a high net-worth individual who enjoys investing in startups and novel business ideas.
They are not very difficult to find. You can run a search online right now (we suggest you try the Angel Capital Association). What’s going to be challenging, though, is how you’re going to pitch your idea to them. You need to make them understand its potential, particularly from a profit standpoint, so bring your A-game.
4. Or convince a venture capitalist
If you need an even bigger capital—even bigger than what your angel investor can shell out—then we suggest for you to consider venture capitalists. They search for up-and-coming companies that they can invest the money of their clients in, in the hopes of growing this investment.
Because of this, you should know that they will be expecting their money to grow exponentially (up to ten times their original investment) in the course of five to seven years. This means that you should really work hard to make your idea work else facing a mountain of debt in the future.
Anyway, if you’re really prepared, and you’re sure, deep in your guts that your plan will work, then browsing the National Venture Capital Association website is a good place to start.
5. Get micro-financed
Micro-financing today is like a crossbreed between grants and crowdfunding. Instead of applying from a government program, though, you’ll be going through micro-financial institutions and non-banking financial companies, and instead of having different sponsors in crowdfunding, you’ll have different micro-lenders (or just one, depending on the program you apply for).
Just keep in mind, though, that the main objective of micro-financing is poverty reduction, so it’s targeted towards the minority or those considered by banks and lenders as “high-risk” borrowers. The good news is, if you do get approved, you can expect almost no collateral needed, flexible payment options, and lower interest rates.
Work with your existing network
But…why would you need to apply for a grant or search for an angel investor if you can explore your existing network? That’s right. We’re talking about your family and friends. Someone might be interested in investing not just on your business idea, but on you as a person.
We’re not saying that you should sit around your friends over some beer or convince your family to your wild ideas over dinner. This is business we’re talking about. Show them how professional you are by making a serious demonstration complete with a comprehensive business plan.
The main consequence of doing this, though, is you might end up straining your relationship with business and money later on, depending on how you both handle it. But, on the good side, you probably won’t need to worry about paying interest, or in repaying your loan at all depending on how generous your investor is.
The Bottom Line
That’s it! As you can see, there are actually various ways in order to raise the money you need for your new business. We hope that our short article has given you some ideas on where to start, and that you really do get the money that your idea deserves. In fact, feel free to explore our other articles as well. Good luck!
Lidia Staron is a part of the Content and Marketing team at OpenLoans.com. She contributes articles about the role of finance in the strategic-planning process.