Financing is one of the most complicated challenges of putting up a startup. Creating a business from scratch is not easy, and it’s not undoubtedly cheap either. It’s a costly endeavor, one of the most common reasons people hesitate to establish their own business.
We can’t blame them. Imagine doling out a lot of money and then getting nothing in return. Not getting a return on your investment is the most significant risk in business. However, if that doesn’t faze you and you’re looking for ways to finance your startup, there are options you can resort to. Here are some of them:
Bootstrapping
If you have already saved up money for a startup or are one of the lucky ones who are already loaded and can fund their startup, then this one’s for you. Bootstrapping is essentially funding your own business with your pockets. But of course, this might be a hard skip for the more unfortunate ones who don’t have that kind of money. If you can’t do this straight up, the other options below may be more feasible.
Crowdfunding
If you believe your business project can garner a fan base, this one’s for you. There are a lot of crowdfunding platforms on the internet that let you advertise your business project and have people support it through donations. If you think that’s impossible, let us reassure you: it’s pretty viable. It’s especially true regarding products that many people will find helpful.
One example of this is technological products. Many people nowadays support businesses that offer gadgets and let them make their pre-orders before the product arrives. Another example of this is the gaming industry. The gaming community is vast, and more often than not, they support indie creators. Many massive games nowadays start from crowdfunding, where they get donations from their fans.
Business Loan
It’s probably the most common method there is. A business loan functions similarly to a standard loan but is specifically designated for purposes such as capital funding, equipment financing, and specialized options like business loans in Massachusetts. If your credit score isn’t stellar, you can always look for online loans for bad credit, which you can use to fund your business. However, being approved for a business loan can be quite challenging.
You must prepare a business plan, expense report, and financial forecast for the next five years. If the bank or lender finds your business promising, they will offer you one of their business loan deals.
Home Equity Loans
It’s more from the personal side of things. If your house is mostly paid for, you can take out a small loan against your equity that you can use to begin your startup. It can be done through your mortgage.
Usually, before the bank approves your home equity loan, they have to size up your house by looking up its price in the market and how much you’ve paid on your mortgage. They will then get the difference between the two and offer you a home equity loan based on the difference.
For example, let’s say your house is worth $250,000, and you have an outstanding mortgage balance of $160,000. The difference would be $90,000, which will be the money you can borrow for your home equity loan. Pretty neat, right? However, there’s a catch.
If you can’t pay for the loan, the bank will claim that part of your equity. Or if you’ve been offered the full price of the house as a loan and you haven’t managed to pay for it, the bank will seize your house. It’s pretty terrifying to lose a house over that, so before you go for a home equity loan, you might want to make sure you can pay it first.
Investors
Another route you can take is investors. These high-net-worth individuals or groups are willing to support your business financially in exchange for equity. It’s a pretty sweet deal, but having to give your equity can be a bit of a disadvantage.
However, the best thing about it is that the amount they can lend you can be huge. And that’s not all. They can also give you office spaces, equipment, staffing, etc.
Love Money
These are funds you can borrow from your family and friends. It’s essentially money you can loan from your loved ones that, of course, must be paid. It might be the most unpopular one on this list since we all know how complicated things can get if you mix business and family.
Before you take this route, you must know some things first. First, be prepared for the possibility that they may have no money as well. Second, they might ask to get some equity in your business. And third, don’t underestimate how family issues can be the reason your business will go bankrupt.
Final Words
Funding a startup isn’t easy. Thankfully, however, you can find financing for your startup in several ways, and it can be easy if you’re resourceful and know where to look. Just don’t forget that borrowing capital from an entity doesn’t go free. Do your research first and pick one that is suitable for your business.
