It’s one thing to have an idea for a startup. It’s another to have the financial resources to build it out and hit the ground running. For first-time entrepreneurs, figuring out the money side of scaling a startup is often the most challenging aspect. Do you understand your funding options?
IMAGE: PEXELS
Consider These 5 Funding Options
There isn’t a standardized formula for funding a startup. It all depends on the circumstances surrounding your situation and what sort of things you have working to your advantage. With that being said, here are five of the most common options:
1. Self-Funding
It’s fairly common for entrepreneurs to bootstrap their own startups and self-fund in the early days. While there’s a lot of risk involved in this strategy – particularly if you’re tapping into retirement or pulling out a second mortgage on your home – it often requires you to give up less control in the business.
2. Small Business Loans
Perhaps the most traditional route you can pursue is a small business loan from a bank or credit union. The nice thing about these loans is that you have a lot of options to choose from. The hard thing is that banks can be picky and you have to provide a ton of documentation and pore over a lot of paperwork. If this is the first time you’ve ever done something like this, it can be stressful.
3. Hard Money Lenders
“Hard money is a way to borrow without using traditional mortgage lenders,” Justin Pritchard writes for The Balance. “Loans come from individuals or investors who lend money based (for the most part) on the property you’re using as collateral.”
If you don’t qualify for a traditional loan and don’t have the means of self-funding, you might find a hard money lender who is willing to work with you.
4. Venture Capitalists
Like hard money lenders, venture capitalists use their own money to invest on their own terms. However, venture capitalists also offer their expertise and guidance. They essentially become a partner and ask for a stake in the company.
5. Crowdfunding
It’s 2017, which means we obviously have to mention crowdfunding! Sites like Kickstarter and Indiegogo can be used to crowdfund money from individuals. And while certain businesses don’t work very well with this method, others have been quite successful over the years.
Set Yourself Up for Success
Knowing your options is only the beginning. In order to actually fund your startup in the most cost-effective manner possible, you need to put yourself in a position to be successful.
Here are some factors that may come into play (depending on the route you choose to go):
- Credit score. Traditional lenders – like the bank – will want to know that you’re responsible with your money. Your credit score is one of the biggest factors they use to determine this. If you have a poor score, fixing your credit should be at the top of your list. There are a number of ways you can do this, including lowering your credit utilization rate.
- Track record. What sort of experience do you have starting and building businesses? Banks, credit unions, hard money lenders, and venture capitalists all prefer to work with individuals who know what they’re doing.
- Finally, you need to be confident. When it comes to getting financial support from investors – whether in a formal pitch setting or an informal crowdfunding scenario – you’ll have to clearly articulate that you believe in your idea.
As you pursue funding, make sure you’re giving yourself the best chance of being successful by taking seemingly small factors like these into account. You won’t be disappointed!
If you are interested in even more startup-related stories and information from us here at Bit Rebels then we have a lot to choose from.
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