One of the biggest challenges new business owners face is the lack of funds to get their business off the ground. While many business owners would like to seek out ways to fund their business, many are unsure of exactly how to go about funding their business and are unaware of the different funding options available that can help them get their products or services out there. In this post, I’ll be discussing the various ways in which you can fund your business.
First things first though, before you even consider spending or borrowing a dollar, you need to ensure you have a solid business plan.
I cannot stress the important of having a plan for your business enough. Why is this step essential?
Well, a business plan helps you clearly lay out your WHAT, your HOW and your WHY and through the process of creating your plan, it helps you determine if this is a business you really want to pursue and if your product/service, based on the research you do for your plan, is something people want to spend their money on.
Once you have a solid business plan in place and you are certain you are ready to pursue your business idea, then you can start thinking of ways to fund it.
Below are 5 ways you can get funding for your business:
1. Fund it yourself
This should be your first resort - self funding from savings you have or from savings that you begin to put aside. Funding your business yourself is beneficial because this way you don’t start your business off with debt.
If you have no money (or not enough) to put towards your business right away, use as many free and inexpensive resources available to you to get set up and start saving a little bit at a time towards things you want to do in your business i.e. Use a free blog platform, create a social media following, create a small sample set instead of a full blown product line, use free online scheduling and planning tools. (Check out my post on 10 tools than can help you save money in your business HERE).
Self funding means you may need to start small and follow a slower growth progression than if you had a ton of money but starting small is perfectly fine. It comes with a lot less risk and you can build up your business that way.
2. Ask family and friends
The general rule is to keep friends and family separate from your business but I think it really depends! Friends and family can be your best bet when it comes to funding because you know and trust them and you can work out really low or zero interest payments with them.
I will however caution you, to be very careful not to ruin relationships with your friends and family due to miscommunications.
Draw up contracts and make sure you are all in agreement with the terms you set up. Also keep in mind, if you are asking friends and family for funding, they might want a share of your business in return (also known as equity).
3. Angel Investors
Angel investors are typically high net worth investors who invest in your business – they could also fall into the friends and family category or they could be friends of friends or acquaintances or people with a strong interest in your type of business.
An angel investor, differs from friends and family in the sense that their funding is more than a mere loan to help you get your business started that you pay back with interest. An angel investor is most likely looking for equity ownership in your business.
4. Get A Bank Loan
The good news about getting a loan from a bank is that you don’t have to give up a share of your business in exchange for a loan. However, getting a lot from a bank means having good credit AND it also means acquiring debt that you’ll have to pay back with interest over a specified time period.
If you are approved for the loan and depending on your business credit worthiness, the interest you will have to pay back can get really expensive. So it's important you have a sense of your breakeven numbers and profit forecasts so you can determine how and by when you'll be paying back the loan.
Also remember that business plan we talked about earlier? The bank is going to want to review it in detail, along with your credit to make sure they get their money back.
5. Crowd funding
Crowd funding is basically pooling together a large number of people (usually online) to contribute to your product or service creation in exchange for a reward e.g. The first available offering of your product with some extra or equity (shares/ ownership in your business) example – kickstarter.com, fundable.com.
With crowd funding, you don't have to give up any equity and you also won't have to go into debt to fund your business.
However, it's important to know that when you raise money via crowdfunding, you will be paying the crowd funding platform fees based on the total amount that you raise, there might be major tax implications and you'll have to put in a ton of work (including marketing) to ensure you have a successful funding campaign.
Again, I must stress that you need to have a solid business plan to help with you with your proof of business concept because if you rush into a business and start borrowing money without having fully done your research and without knowing your audience and you can potentially make some really big financial mistakes.
Take your time, do your research and decide what kind of funding works best for you!
Bola Onada Sokunbi