6 Ways To Fund A New Business Idea or Startup
While many people aspire to create their own business every year, the odds of success are slim. When you look online and see success stories all over the place, this is simply because no one wants to write or read about the massive failures that happen every day. In fact, for every success story, you come across, there are probably 1,000s of failed businesses, startups, and ideas that happened behind the scenes that not many people ever heard about.
An article in Business Know How estimates based on SBA statistics that out of hundreds of thousands of businesses started each year, only about half are still in business five years later and only a third after ten years — and even these numbers still seem high for success rates.
While there are many reasons for this high failure rate, two major reasons are that businesses are underfinanced and that new business owners don’t have enough knowledge and experience to overcome the inevitable business problems they encounter. While the concept of starting a blog requires minimal-to-no investment, it still shouldn’t be something you jump into blind. Now imagine doing the same thing if you were going to start a company, pay for rent, hire staff and take out a loan in the process. For more details on this process, simply follow my how to start a blog course on Udemy, which currently has over 10,000 students and more than 100 5-star reviews!
Your chances of success increase if you know how to start a franchise rather than plan to start a business from scratch. Your odds of success increase because you are following a proven formula and get plenty of guidance from the franchisor on how to operate the business. In addition, to tapping into expert knowledge on what to do, it’s also easier to get funding for a franchise because a lender can review the franchisor’s figures to determine if a business owner will be able to repay a loan.
So, if you want to start your own business, either as a franchisee or to launch your own business idea, how do you go about raising the money that you need to be successful?
Here are 7 ways to raise the money you need to start your own business.
1. Finance yourself
The upside of financing yourself is that you don’t owe anybody anything should your business fail; and depending on how you’re self-financing, you may not have to pay interest on the money. The downside, of course, is that you could lose everything you’ve worked your whole life to slowly accumulate.
Financing yourself can be done by tapping into your personal savings, by selling your personal assets, using your credit cards, borrowing against your home, taking out a personal bank loan, or cashing in on your IRA or your 401(k) retirement accounts.
2. Borrow from family and friends
If you can’t raise enough money through self-financing, you can get some extra capital by borrowing from friends and family. Again, this, too, has obvious risks, if your business venture doesn’t succeed as well as you had hoped, you may have a difficult time paying everyone back and this could permanently destroy your close relationships.
3. Get help from Uncle Sam
The Small Business Administration (SBA) will not directly lend you money for your business, but it will offer a guaranty program for getting a loan from banks, credit unions, and other qualified lenders. You might be able to get funds from a 7(a) Loan Program or a Microloan (ranging from $10,000 to $50,000).
4. Apply for Venture Capital (VC) funding
If you can convince a VC firm that you have a brilliant business idea that they might be willing to make a direct investment in return for equity stakes in your business. These loans tend to be difficult to get because venture capitalists tend to be very selective. Even if you do happen to have invented a device that could change the world as we know it, a startup destined for explosive growth, you also have to give up more equity or control of your business operations that you feel comfortable with.
5. Talk to an Angel Investor
The idea of an angel investor sounds like a dream come true—an affluent person looking for an investment opportunity. However, like a VC loan, they will ask for a large equity stake in your business and also try to control how you run things as a way of protecting their investment.
6. Get help from an aggregate of strangers
Crowdfunding is one of the most democratic ways of getting enough money to launch a business. In crowdfunding, many people will donate a small amount of money each toward helping you reach your financial goal.
However, there are four things you need to do to be successful with crowdfunding.
- Intrigue your audience. Usually, the more creative the idea, the more likely it will be to appeal to people looking to donate to a worthy cause. For instance, writing an unusual book, making a documentary movie about some endangered animal in a remote region of the world, researching a free-energy device, and so on.
- Follow all the rules. You need to follow all the rules of the crowdfunding platform. If you fail to follow these rules, even if it’s out of ignorance, all the money might be returned to the donors.
- Give donors a memento for their efforts. It could be a copy of the book they helped you research or a t-shirt or a membership to a business you’ve built.
- Pitch a good story. You will need to be very good at marketing your idea—with lots of strong copy, great video presentations, and other forms of delivering your pitch.
Although it’s not easy to fund your business, it is possible to find the right funding for your startup. Sometimes, too, you may have to try a number of different ways to raise the capital you need.
Wait... before you leave, consider these top resources: