WHERE TO GET STARTUP CAPITAL FOR YOUR NEW BUSINESS
Finding funding for your new business can be difficult, but it is one of the first hurdles you must overcome to get the business up and running. Fortunately, there are many different ways to raise enough startup capital to get started on the path of entrepreneurship. Here are a few of the most common ways to get funding for your business venture.
The majority of startup ventures are funded by private investors. These individuals are generally already successful business people that are looking to explore risky business opportunities. If you are lucky enough to find a private investor to fund your business, you may also find that they make an excellent mentor that can potentially help you find other new sources of funding.
Loans make up the majority of a bank’s business; since they make most of their revenue on interest, they are generally willing to loan money to entrepreneurs who want to start their own business, as long as they are a safe credit risk. If the bank believes your company will generate enough income to repay the loan with interest, or if you have enough assets to repay the loan outright should the business fail, you may qualify for all of the loans you need.
Bankers are typically easier to deal with than a bank. Bankers know that they are loaning to people, not businesses, which means that they tend to be more willing to take a risk. Get to know your banker and maintain a good relationship with them, continuing to do business with them even if they switch banking institutions. After all, banking relationships are built on trust and credibility built over time. Treat them as well as you treat your customers.
Venture capital is money provided to seed, early-stage, emerging, and emerging growth companies. In exchange, the company providing the funds gains equity in the new business. These are among the most difficult funding methods, as venture capitalists tend to look for businesses that will grow substantially and offer a return on investment. They also generally want to be involved in your decision-making. They look to fund companies that will have the potential in three to five years of providing an exit strategy, such as a public offering, merger with another company or a buy-out of the investors. By building an exit strategy into your business plan, you have a greater chance of attracting venture capitalists.
Friends and Relatives
Be wary when asking friends or relatives to invest in your business. Accepting funds from the people closest to you is a complicated issue that can make or break the relationship. On one hand, if you do not invite them to invest and your company succeeds, they may resent you for withholding a great opportunity. On the other hand, if your business fails, they may blame you for losing their money. Never accept a large amount of money from a friend or family member who cannot afford to lose it. It is simply not worth the risk. If you are going to offer investment opportunities, do so only after your business is out of the preliminary stages.
Another way to gauge interest in your business idea and raise funds is through crowdfunding websites like Fundable and EquityNet. Crowdfunding describes the method of raising capital through the collective effort of friends, family and individual investors primarily through online promotion. Unlike traditional fundraising efforts that require you to pitch your business plan to a small number of affluent lenders to receive a large loan, crowdfunding allows you to get your opportunity in front of more interested parties and give people ways to make smaller investments in your business in exchange for something of equal worth. You can offer anything from equity in your business in exchange for a large monetary contribution to your campaign to smaller rewards, like a first-run edition of your product or discounts on future services. If you are interested in running a crowdfunding campaign, be sure to browse other successfully funded campaigns to see what works and what doesn’t.
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