Financing Your Dreams: Options for Startup Capital

By Kaleem Ulah

July 9, 2024

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Starting a new business is fun and exciting. However, the idea is good, but you likely failed to account for your business idea's expenses when it was initially conceptualised. From the very beginning, you likely envisioned the goods or services, planned out the advertising, calculated the potential earnings, and fantasised about the freedom of being your boss.

Nevertheless, capital is required for all these endeavours; hence, investing in your firm is essential to its success. How much money you'll need to launch your business directly relates to your business idea and available options. Funding a new venture doesn't have to be difficult; numerous options exist! Going into business without the capital necessary to launch is a recipe for disaster. So, let's examine a few options for generating starting capital for your new business idea.

8 Top Ways to Fund your Startup

The following is a list of different ways to acquire capital for your new business.

8 Top ways to fund your startup

1. Family and friends

A common way to start a business is to borrow money from family and friends. You might have difficulty getting investors or banks to believe your idea, but your family and friends certainly do. They might be more willing to give you money to help your business. Before you borrow money from relatives or friends, you should all get good legal advice. This is especially important if you are taking the money as a loan. The bad thing? When you borrow money, you quickly lose friends and hurt relationships with family. If you choose to go this way, be careful.

2. Fundraising through crowdfunding

More and more people are using crowdfunding to get the money they need to start their businesses. You can tell people about your business idea, funders, and even other businesses and ask them to help you get it going. A lot of businesses post their goods on crowdfunding sites. Once they get enough money, they make the products and send them to the backers.

That is not only a great way to get money, but it also helps you find people. You can start making a great marketing plan immediately because your brand will get the attention it needs. Remember that fundraiser sites have a lot of other people trying to get the same thing as you, so you need to make yours stand out.

3. Bootstrapping

When you "bootstrap," you use the money you already have or the money you get from family and friends. When you take money from family and friends, you usually don't have to pay interest or a little less. You need to consider the costs of starting your business and start saving to build up a "startup kitty." If you see yourself investing for ten years, you should invest in stocks. Consider a set income if your goal is closer. Make sure that the investments you choose for your savings are risk-free and easy to get out of. You can choose liquid funds or ultra-short funds. Stay out of the stock market to make more money. It's too risky.

4. Loans

This is any kind of loan that helps new businesses that have little or no business experience. These loans are just one way for founders to get the money they need to start or improve their new businesses. A small business starting loan is a broad term for several different types of loans. Here are the main types of small business startup loans you might run across as you determine the best financing for your startup.

  • SBA loans

The Small Business Administration (SBA) backs an SBA small business loan. The SBA is a federal government program helping small business owners since 1953. It does this through mentoring, training, counselling, and small business loans. The SBA backs the loans, but they don't come from the SBA itself. You'll need to find a nearby lender that offers SBA loans to get the money.

  • Credit cards 

Business credit cards are not a standard "loan," but they are a great way for early-stage startups to begin. Select a credit card with a 0% introductory APR. You'll get a free loan if you can pay off the amount every month (or at least by the end of the first year, when most credit cards' interest rates start to rise). But watch out for credit cards with high-interest rates; you will need more time to pay them back. After the introductory period, you'll have to pay much interest on any balance.

  • Short-term loans 

There are small loans called short-term loans that must be paid back in three to eighteen months. They are often used as a short-term fix when a business has trouble with cash flow, in an emergency, or to help it take advantage of a chance to make money.

5. Angel Investors

Angel investors are wealthy people or groups of wealthy who put money into new or small businesses in their early stages. India has many angel investment networks or groups. For angel investors to be willing to put more money into your business, you may need to give them a bigger share of it. They usually like your idea and business plan and are ready to give you the money you need to start the business. Sometimes, they even hold your hand while you handle the money. 

6. Revenue

Just make money; it's that easy. Getting people to pay you is the best way for a new business to get money. Get to the heart of the issue you want to fix, then charge something. It's not easy, but if you look at your business this way, you can improve your bottom line much more quickly and avoid wasting time trying to raise money too soon.

7. Pitch contest 

Let's face it: you probably won't get on Shark Tank. Many local groups working to boost the economy and help new businesses have chosen to hold competitions like the ones on Shark Tank. These events are a great way to practise your pitch for other investors, and you might even win non-dilutive cash. In most cases, the only thing you'll lose is time. Even if you're not the first pick, you might get more people to know about your business. The bad thing? You might spend much time on your investor pitch instead of making your business bigger.

8. Do not quit your job

This seems to be a bad idea for most people, but it is important to hold on to your job until you know what you are doing. Do not be in such a hurry to quit your job and follow your business dreams if you already have a job that pays your bills and lets you live a satisfactory life. Spend some time getting the business up and running while your 9-to-5 job pays the bills. This will help you get through the early, tough times.

This lets you build your business with fewer concessions and stay true to your vision without giving in to money concerns. Your job can also teach you useful skills that will help you run your business in the future. The bad thing? You might miss out on some chances if you run your company as a side business with your full-time job. In addition, you might not be able to give the job the time and attention it needs to take off.

Conclusion

You now understand the various prevalent financial methods that can be utilised to support your New Business. If you are looking for capital for your new business venture, at least one of the methods described will greatly assist you. Prepare yourself for all the steps involved in bootstrapping, and launch your startup while selecting the most suitable alternative from the accessible ones. Before you start, go through this Business Financial Planning Guide to help you on this journey.

As a startup, you need an accounting company to help you with business advisory services. You can transform your startup's financial future with The Kalculators! Our expert team specialises in crafting tailored financial plans for startups, ensuring strategic growth and stability. Gain clarity, confidence, and control over your finances today.

Frequently Asked Questions

How will I identify the most suitable source of first funding for my company?

You should consider many criteria, including the quantity of cash that is required, the development potential of your company, your readiness to give up stock or control, the terms of repayment, the interest rates, and the level of risk you cannot tolerate. Conduct a thorough analysis of each source, and select the most suitable alternative for your company's objectives and the current state of your finances.

How much capital do I need to get my business?

Several elements influence the amount of required starting capital, including the type of business, its scale, the industry, the location, and other factors. By carrying out extensive research and developing a comprehensive business plan, you can estimate the initial expenditure required to begin and run your business for the first few months or years.

What are the benefits and drawbacks of each funding option available for new businesses?

Each of the several sources of startup finance has its benefits and drawbacks. Personal savings promote freedom but restrict the amount of money that is available. Loans from family and friends may be simple to obtain, but they can pressure relationships between individuals. Venture capital firms and angel investors contribute large amounts of cash but frequently require equity or control in exchange for their investment. Platforms for crowdfunding provide access to a large audience, but they require excellent marketing to be successful. Bank loans provide financial leverage; nevertheless, collateral may be required, and interest rates may be specified.  

Before I agree to accept funds from investors or lenders, what factors should I take into consideration?

Before agreeing to take financing from investors or lenders, it is important to thoroughly examine the terms and conditions of the agreement surrounding the investment or loan. Take into consideration a variety of aspects, including the interest rate, the repayment schedule, the ownership stake, the control and decision-making rights, the potential exit options, and any risks or duties associated with the loan. To ensure that you understand the ramifications of the funding arrangement, it is recommended that you seek the advice of competent legal and financial professionals.

What steps should I take if I encounter difficulties in acquiring startup money?

Suppose you need help securing startup capital. In that case, you might consider revisiting your business plan to identify areas that could be improved, investigating alternative funding options, seeking advice from mentors or industry experts, networking with potential investors, and remaining persistent and resilient in your pursuit of financing opportunities. Additionally, consider soliciting feedback from investors or lenders who have turned down your requests for money to understand their issues and effectively address them in future pitches.

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About the Author / By Kaleem Ulah

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Kaleem is CEO & Author at "The Kalculators". With more than 10 years of experience in financial services, He built Kalculators to transform your financial challenges into strategic triumphs!

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