The 5 Best Ways to Fund Your Startup This Year
While it would be cool to pitch for investment on “Shark Tank,” not everybody can, or needs to. So don’t worry if you don’t get the chance. The vast majority of startups get their initial capital through other means. If you plan to launch your business this year, know that more options exist than ever before for funding your venture. Technology has disrupted the lending industry, bringing entrepreneurs new ways to fund their dreams.
Here are the five best funding sources for your startup in 2018.
Startup business loans
Martin Zwilling, a startup mentor and angel investor, notes that while “nobody is waiting in the wings to throw money at you,” creative financing options do exist for your startup. In fact, you have a variety of loan types to explore.
Designed specifically for new businesses with little or no business history, startup business loans are available through traditional banks and online lenders. Broadly speaking, these loans are any kind of financing used to start and run a business. Approval typically depends on your personal credit, since you may not have a significant business credit history.
Some startup loan types to consider include:
With equipment financing, you can get the money to purchase machinery, computers, vehicles, cash registers and whatever else you need to get your business up and running. The equipment itself serves as collateral, securing the loan—which means you won’t have to sweep lenders off their feet with stellar credit or an amazing business plan.
Business credit cards
Business credit cards can be a great way to gain access to working capital and start building up your business credit. Typically, approval depends on personal credit standing—and cards do exist for those with bad credit (typically secured).
While APRs can be high, the main reason to use a business credit card is the rewards, which could be cash back, points, miles, discounts, etc. Earning rewards on money you’d be spending anyway is a great way to save in the long run.
Sign-up bonuses, especially those cards that have 0 percent introductory APRs, can be a great way to finance your first year of business (if you pay it all back before the promotional period is up, borrowing will basically be free). Just remember to be responsible and only spend what you need.
Credit line builder
If you want to obtain funding while improving credit standing, begin with a credit line builder plan. With this strategy, you apply for multiple business credit cards with the help of a financing company. You then use those cards to fund your initial operations, being sure to pay your bills on time and in full (if possible).
As you use the card and responsibly return the money, you can build your business credit and start qualifying for better funding options. Keep in mind, though: late payments and high utilization across multiple cards can have a terrible effect on your credit score. Only consider this option if you know you can be responsible with multiple credit cards for your business.
Based on research from Fundable, a crowdfunding platform, the most common way startups are funded is through personal savings and credit. While having skin in the game can be risky, it’s the quickest and easiest way to get money for your business.
Now, you may be thinking that bootstrapping will limit your chances at success. But know that many famous companies bootstrapped their way to success, like Craigslist, GitHub and Spanx. These businesses grew slowly and methodically without major early cash injections from venture capital or loans.
Relying on your own cash to run the business, you’re almost forced to operate nimbly, spend effectively and strategize wisely. It may actually be highly beneficial for your business.
Consider this: 80 percent of Americans shop online. Just as shoppers have gone online, so have many investors. Donation-based crowdfunding companies like Kickstarter, peer-to-peer lending platforms like Lending Club, and equity crowdfunding sites like CircleUp have made it possible to go around banks and investment firms to get capital.
Of course, you need a plan before you pitch on these platforms. Nathan Resnick, a serial entrepreneur who’s had success crowdfunding, recommends first developing your company’s story, explaining the important need you solve and why you need support.
Crunch the numbers to get a realistic dollar amount goal. Then, get to work creating a great website and video pitch. Before and during the campaign, reach out to media outlets and run an organic marketing campaign to spread the word.
In addition to actually getting money for your startup, you can also gauge market interest during a crowdfunding campaign. You can see what (and what doesn’t) capture attention. Additionally, you remain in control over how the money is used when you get it.
Before you begin a campaign, think about how you want to crowdfund. You can try for donations, go for a loan, or offer equity in your startup.
Angel investors are accredited individuals with more than $ 1 million in net worth and a high annual income (more than $ 200,000). They typically run solo investments, but may have a team to manage investments. Angel investors are potentially a good source of capital for your new business because they look to finance early-stage startups.
What’s the advantage of angel investment? Well, they’re typically not as hands-on as venture capitalists (VCs), who represent a firm and have an obligation to meet return projections (which is why VCs aren’t really a feasible option if you’re just starting). That means you can use the money as you see fit. Also, angel investors offer industry expertise and can help you network, and that can benefit you tremendously in the early days.
Now, where do you find angel investors? You could try networking at your local Chamber of Commerce. The Angel Capital Association is a good resource for finding angel investors online or in your local area. Check AngelList as well, which is a platform that enables startups to obtain investment from individual investors and independent teams.
Friends and family
You may be thinking, “No way!” But chances are you’re not going to need a boatload of money. According to the Kauffman Foundation, it costs about $ 30,000 to start a business. Obviously, this could be much higher or lower for your company, depending on the industry, location, initial scale of operation and other factors. Even if you feel your funding goals are too high to meet, friends and family could certainly still help with a portion of it.
Brent Gleeson, an organization transformation consultant, sums up perfectly why you should ask family and friends for capital to start your business. He says, “Those closest to you are more likely than anyone to believe not only in your vision, but your ability to make that vision a reality.“
When taking money from friends and family, be clear about whether the money is a loan or equity in your company. Get everything in writing and set up a plan to repay the money (if it is a loan). Communication is key to avoiding misunderstandings, protecting the relationship and making it a fruitful endeavor for all involved.
Getting the capital your startup needs in 2018
These five ways to fund your startup are all worth looking at as you start your business this year. Gone are the days of only being able to walk into a bank and apply for a term loan (though you should still try that). By exploring all potential sources of capital, analyzing your capital needs, and crunching the numbers, you can find the best way to fund your startup. And you can get to work building your business.