By Elena Tahora
Findings from a recent study indicate that over 94% of new businesses do not become successful during the first year of operation. One of the most common reasons behind this failure is lack of funding. Money serves as a fuel to any type of business. Here are 7 ways to help raise enough capital to fund your startup.
Bootstrapping or self-funding is an effective way to fund your startup. Entrepreneurs may invest their own savings or can get their friends and family to contribute. You can also ask your loved ones to pool in. This is helpful as friends and family can be flexible in terms of interest rates and formalities.
Self-funding is often considered a preliminary funding option owing to its many benefits. However, this generally works if you are starting a small business or are likely to make considerable profits from day one. A few business ideas may require considerable finance to take off and bootstrapping may not be the most perfect way to fund these start-ups.
A great way to fund a startup is through crowdfunding. Recently, the idea of funding start-up ideas via mutual benefits is gaining popularity. These are investments or contributions from more than one individual who would like your start-up to grow so they can benefit from it. A few popular crowdfunding platforms are Dreamfunded, Kickstarter, GoFundMe and RocketHub.
Angel investors are people who have a surplus of finances and seek to invest in upcoming startups. These investors generally screen hundreds of proposals before they decide to invest in an idea. They can also offer notable advice to initiate a business. Thanks to angel investors, many renowned companies have come into existence, including Alibaba, Google and Yahoo. These investors are willing to take more risk for higher returns. However, this funding method has its flaws and these investors invest lower amounts than venture capitalists.
This type of investment is usually suitable for small businesses that are already generating revenue. If a startup is already making enough returns, venture capital investors are likely to invest in your idea. However, if a product takes longer to get to the market, this form of investment may not be the perfect way to fund your start-up.
As interesting it sounds, a great way to fund your startup is to win contests to maximize the fundraising potential of your business idea. Many contests encourage entrepreneurs who have sound business ideas to establish their own businesses. Most of these competitions require contestants to present a product or business plan. Winners also enjoy media coverage.
Generally, banks are one of the first places to go to when funding your start-up. You should know that the bank offers two types of financing for businesses. The first one is referred to as capital loan while the other one is funding. Capital loan is the loan needed to execute one complete cycle of revenue generating operations. Getting funds from a bank involves the whole process of valuation details and sharing the entire business plan.
Apart from other factors, the loan is sanctioned on the project report. Websites like Kabbage assist you in learning more about capital loans. Unlike conventional lenders, Kabbage approve small business loans by reviewing real-life data and not just the credit score.
Credit Cards and Pre-Sale
There are other ways to raise funds for a business, but they might not be applicable for everyone. Sometimes, selling your products prior to their launch date is a good way to raise funds for financing future business processes. Business credit cards are also among the most reliable and accessible methods of financing a start-up.
Elena Tahora is the writer of this article. She has a master’s in Finance and currently the content strategist at Csb-Group. She is passionate about helping start-ups and young entrepreneurs succeed.