You might have a billion dollar business idea that will make you nearly as much rich annually as you imagine but what happens if you do not have a billion dollar to get it to reality? For a business to thrive you might need a website, a technical team, a work space. All these cost money and it is not always easy to find sources of funding that might meet the increasing demand of money as your business grows. Therefore, you should be keen from the very beginning to handling the monetary issues and be solid in start- up funding.
Entrepreneurs need a small amount of funding
Irrespective of what your new business venture – an ice cream shop, a clothing line, building a new app – a certain amount of money will always be required to get the idea off the ground. The first place entrepreneurs who are optimistic about their business will look for funds is their pocket but what happens if the pocket is empty?
There are three main types of start-up funding
Three types of funding are currently available for start-ups. Each of the type of financing has its own benefits and drawbacks. However, every business is unique in their requirements. Carefully analyzing the three different types of funding options available will help you to know which one suits the best for your business. The three types of financing are listed below.
1. Bootstrapping your business
Bootstrapping of your business simply means collecting funds from unconventional sources. As an entrepreneur, you do not necessarily need to drain your pocket to finance your business. Creativity comes to play in bootstrapping because the idea is to use existing resources to earn revenue. Some of the ways to bootstrap are as follows:
- Renting anything of value: Renting your home can be a potential goldmine. You can also rent out machines – if you have any – to those who need it. A cleaning start-up founder, Adam Falla once narrated how he would rent out his home for a few nights a month.
- Crowdfunding: Crowd funding is relatively new. Here, you put up your idea online using crowd funding platforms. People will view your idea and if they are impressed, they can pledge to support it.
Bootstrapping has its pros and cons
The good thing about bootstrapping is that your business will not be bogged down with monthly payments. On the other hand, depending on the scale of your business, bootstrapping may not bring in sufficient cash needed to start off.
2. Borrowing from willing lenders
Many new entrepreneurs consider this option first whenever they are aiming to raise some amount of funds to bring their business to life. Borrowing may not come with legally written terms but certain issues will need to be ironed out.
- Family and friends: They can provide the financial backbone needed for your business with little or no request for interest but taking this bold step can be intimidating.
Borrowing has its good and bad side
Borrowing can guarantee you the exact amount of money you need for your business but the problem here is that it comes with a cost – putting a strain on the relationship with the other party.
3. Loans and investors
Loans and angel investors can be your next line of action if you do not want to get your family and friends involved. Getting a loan is usually very difficult for start-ups. Loans can be obtained from any of the following;
- Commercial banks: these are the highest financial lenders. The beauty of bank loan is that you can be sure to get the exact amount you need no matter how big.
Bank loan has its pros and cons
The procedure to getting a bank loan can be exhausting but bank loan can come in handy when you are seeking for a large amount of money.
- Start-ups usually require a large sum of money to take off.
- Angel investors are professionals with high net worth aiming to invest in start-ups.
- Obtaining a bank loan is time consuming and can b e frustrating too.
- There are three major ways start-ups can source for funds.
- Borrowing from family and friend can put a strain on your relationship with them.
- Bootstrapping is mopping up revenue from any available source.
- Bootstrapping save your business of monthly debt payments.
- Renting out your home is one way to bootstrap.
- There are other accessories that will be required for a business to thrive.
- All the forms of financing have their pros and cons.
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