You might have a very innovative and fresh business idea, but if you pour all your savings into it, you’ll be in a risky spot. When things go south, you have little to no funds to catch you and the business you’ve set up. Hence, the few who can fund a business venture on their own are considered lucky.
Unfortunately, not everyone has the luxury of building their business using their own money. Thankfully, there are many ways to fund your business idea without practically emptying up your savings.
But these options have pros and cons, so you should always take caution when picking one. Here are some of them.
The first thing you should remember when considering venture capital is that they’re not for all entrepreneurs. Technology is at the forefront of every industry, and venture capitalists are more interested in technology-driven business or anything related to technology. Not only that, but they are also looking for a business idea that has an aggressive approach and will have to be the same regarding potential growth.
How does venture capital work?
Venture capitalists will take an equity position in the company to help it carry out a risky but promising project or to fund it from down. Of course, they will take some of your equity and expect a very high return on investment in the future.
This return on investment often comes in the form of selling their shares at a high price. However, it’s not only funding that venture capitalists offer but also expertise, properties, and even staff. Before picking venture capitalists, you should look for a group with direct knowledge about the industry you’re trying to enter.
Business incubators are programs that generally focus on the high-tech sector by offering various support to businesses in their different stages of development. Other incubators assist businesses focused on job creation, hosting, and sharing services.
Commonly, incubators would invite businesses and other fledgling startups to share some of their premise, logistical, and administrative resources. For example, if your business is about selling products, incubators would let you borrow some of their laboratories so that a new business can develop and test its products before starting production.
Generally, the incubation phase lasts for two years. After that, once the product is ready, the business will leave the program to handle its development and production.
You can try loans if you want a more traditional approach to funding your startup. Loans are the most common type of financing for small to medium-sized businesses. However, all banks and alternative lending sites like Creditninja.com have different criteria, not to mention different repayment terms, so it should be in your best interest to shop for loan products first.
In general, banks usually avoid funding a startup from its inception. Still, if your startup already has good credit and an excellent track record in financing, they will be more than happy to help you start your business. Of course, you still have some options, like a solid business plan, repayment potential, and perhaps collateral like equity. Some lenders would even require a startup to have a personal guarantee.
Grants and Other Government Funding Programs
Grants are ideal because if you successfully get approved for one, you won’t ever have to repay it.
The federal government runs grants and other investment programs for specific industries and communities. These grants can go from a few thousand dollars to a whopping amount of $250,000, depending on your business’s size. Usually, the agricultural industry has the highest grants offered.
No, we’re not talking about the ones you see in church murals or the Bible. Here, we refer to generally wealthy individuals like retired company executives, firm owners, and the like who are willing to invest some of their money to fund startups that have high growth potential. They are often leaders in their field who have a lot of contributions in terms of funding, staff, and properties.
Just like venture capitalists, they offer all this in exchange for equity. However, they are open to all business ideas and not just tech-driven ones. The only downside is that they’re usually very low-profile and could be deemed good luck to find one. Hence, a ton of research is required if you’re considering this funding option.
Not all of us have the money to bootstrap our way into building our business idea. But luckily for us, there are several ways to fund our startups, from business incubators to angel investors. All choices have pros and cons, so make sure you think about them thoroughly before proceeding with one.