Historically, it has always been difficult for small business startups to secure funding due to the fact that they have no proven track record, credit rating, and generally have few (if any) assets to use as collateral. That being said things have changed somewhat in more recent years. And if you want to start a small business but lack the capital you need, there are several options you should consider.
Undoubtedly the ‘trendiest’ way to fund a startup at the moment is via crowdfunding, where you’ll set up an online proposal on a crowdfunding platform and seek contributions from people. The benefit of crowdfunding is that normally you maintain your entire stake in the business, and instead recompense your ‘investors’ with products – effectively making it a pre-sales platform of sorts. That being said setting up a crowdfunding campaign can be challenging, and the platform you use will typically take a cut of the funds you raise.
Depending on the amount of capital that is required, a short-term loan for a small amount may suffice in some cases. While banks provide short-term loans, they general require a good personal or business credit rating or some form of collateral – which may not be ideal. Instead there are other forms of short-term loans that you can look into, such as buddy loans, microfinance, and online lenders. Typically loans that have more lenient requirements tend to have higher interest rates, so care should be taken.
Some governments may encourage startups in particular sectors by providing grants that will help to fund your startup. The exact terms of these grants differ, as does the type and scale of the funding that is provided. The biggest challenge in funding a small business startup with a government grant, however, tends to be the fact that there is a lot of competition for these grants, and so your business will have to truly stand out in order to obtain one.
While far from ideal, it is possible to self-fund your small business through several means. Aside from your savings, you could borrow from your pension (if any), use a bank overdraft facility, or even rely on credit cards for business expenses. Needless to say self-funding is a huge risk, as if your startup fails to grow as expected and you don’t recuperate your investment, it could have a severe impact on your personal finances.
Hopefully these four methods will give you some ideas on how you can fund your small business startup if traditional business loans aren’t a realistic option. Before you do look for funding however, you should make sure that your business plan is as lean as possible so that you minimize the amount of funds you’ll need to acquire. Once you do that, you can then evaluate which type of funding would be most suitable – based on the amount you need, the nature of your business, and any other applicable factors.
Article Submitted By Community Writer