Not sure where to turn for capital to get your business idea off the ground? With so many funding and finance options available, trying to find which one is best for your business can be like navigating a minefield.
Here’s a quick overview of seven of the most common means of funding a startup.
Sometimes called bootstrapping, this is a common option for many startups. Essentially, you lend money to your business, which can then be paid back once your business starts turning a profit. Repayments made in this way are generally tax free to you and tax deductible to the business. The clear drawback is that you personally need to have the funds with which to provide your fledgling business.
Crowdfunding is a relatively new form of financing, made possible largely thanks to the internet and social media. This method works by tapping many investors for small-value loans, but together they can deliver a large pool of capital. Tech businesses often use this route, as do companies unable to access loans from traditional lenders.
3. Loans/Debt Financing
Borrowing funds is the most obvious means of accessing capital. Banks can be wary of lending to small businesses however, particularly startups. The government also offers low-interest loans to startups, which can be a means of starting a new business in areas such as manufacturing, health, education or research.
4. Venture Capital
Startups requiring larger amounts of money, particularly those envisaging rapid initial growth, can attract venture capitalists to invest in their business concept. Think Shark Tank and other TV shows as examples of how this operates. Beware though that there’s competition for venture-capital funds.
5. Staff Equity
This is a great option of attracting not just startup capital but startup expertise. In this manner, you take on employees or business partners who invest capital in the business and work for the business in exchange for a shareholding in the company rather than taking a salary. Be sure to have an exit strategy from the outset should someone want or need to leave the business.
6. Sell Your Concept
Sell part or all of your concept to another business. As part of the negotiations, you can determine your own working conditions, decision-making responsibilities and operational targets. While you do lose control over running your business, you take the financial risk off your own shoulders and cash in on the windfall!
7. Government Grants
State and federal government grants are available for startups, particularly those involved in defence, innovation, energy, manufacturing or exporting. Better still, while the funds are publicly allocated each year, many grants receive very few applications, so your chances of accessing a grant are generally high. Grants often won’t meet your full funding needs, and they can come with strict usage conditions and complex application procedures, but they will at least boost your finances.