The young and aspiring entrepreneurs are full of passion and have certain enthusiasm when setting up a startup business. But establishing a business is no easy feat, and there are surely ups and downs one has to come across.
The biggest and by far the most important challenge is to ‘fund’ or raise capital to manage all the financial aspects of starting and running a business. There are not one but dozen of tasks that require money which includes
- Registering the company
- Renting out office space
- Purchasing office equipment and supplies
- Marketing and advertising products and services
- Manufacturing products and delivery of products and services
- Giving salaries to employees
- Paying monthly utilities and expenses
Entrepreneurs are quite particular about managing every aspect of starting a business in an efficient manner but may have difficulty on how to best get funding for small business startup. Most entrepreneurs want to focus their attention on the core principles of their business plan rather than evaluating various funding options, which can be a time-consuming task.
When it comes to financing, no one solution can fit all. Each business has different needs and priorities, and funding depends on the eligibility criteria, loan amount, loan terms, and availability of the loan.
How to Get Funding for my Business Idea
If you are starting a business from scratch, then the first step is to determine the startup costs, which will also help you analyze the amount of funding required. Knowing the estimated costs allows you to narrow down the search based on the funding amount that lenders and investors are willing to offer.
One of the essential things to do is prepare a comprehensive business plan with all the relevant details and estimated financial projections. In a fast-moving and competitive business market, many potential investors and lenders do not have time to explore every detail about a business.
However, defining your business, its functionality, and growth strategies can influence investors and lenders to approve the funding application.
Everything today comes at a price, and starting a business is never easy, and you have to think about how to manage and cover the costs. Some of the questions you need to address are
Do you have the means and resources to start a business?
Do you have to get adequate financing?
How to Get Funding for my Business?
Most startups may have a certain promise to deliver and achieve success, but they run out of financial resources without even turning a profit. One of the tried and tested formula is to perform a ‘Break-even Analysis’ that will indicate when business owners can expect the startup to deliver a profit. It also informs the business owners of the minimum performance they must achieve to avoid financial loss.
The break-even analysis also helps to determine the cost of a product or service and the volume of goods or services to be sold to generate a profit.
One crucial step is to manage the expenses expertly from the start. Most startups make the mistake of overspending from the start, resulting in difficulty managing the financial budget. The size of office space, equipment, and accessories to manage everyday productivity must be carefully planned considering the available financial resources.
The initial capital needed for your business idea can come in different ways but usually depends on the company’s fund amount, availability, and creditworthiness. The various options you have in funding for your business include
- Business Loans
Most startups and small businesses aim for financial assistance through business loans from banks or government-supported organizations such as US SBA (Small Business Administration). The private lenders and banks have strict policies and terms to qualify for a loan. On the other hand, SBA loans have better loan terms, lower interest rates, and relatively easier to qualify.
One of the ideal ways for a startup requiring significant funding resources upfront is by approaching an investor. It is quite common that investors tend to pour millions of dollars if they see a certain spark and promise in a particular startup business.
- Business Grants
Business grants are a fantastic alternative and similar to business loans, but there is no repayment required. However, there is stiff competition to get business grants, and a company also has to fulfill stringent criteria. Some of the popular grants to try your luck are National Association for Self-Employed Grants, Government Small Business Grants, and Small Business Innovation Research Program.
- Venture Capital
A venture capitalist is a person who believes in your creative business idea and your passion for turning the idea into a success. However, you need a fully comprehensive business plan, and venture capitalists mostly look to fund a startup that can turn big quickly and deliver profits.
One of the modern trend that has grown popular is ‘crowdfunding,’ where you raise a small amount of money from multiple sources. Crowdfunding is one of the quickest ways to raise capital, and it has helped numerous companies get established and run successfully. There are several reliable crowdfunding platforms, but the key step is to make a compelling pitch.
- Angel Investor
Getting to meet affluent individuals who are known to fund different startups is easy, but convincing them to invest in your business is not that simple. You can pitch in different angel investment groups, but you have to do proper research and be articulate. An angel investor not only helps in funding your business but also offer valuable business advice and mentoring.
- Family and Friends
The first people an entrepreneur usually shares his/her business idea and concept are family members and friends. A person knows that family and friends will provide support even without asking. The good thing is that you can get the money without any strings attached, as there is no rule of interest rates or repaying within the given period. However, family and friends do you a favor, and it is better to repay them to avoid conflicts and straining the relationship.
- Raise money by yourself
Most entrepreneurs are willing to take risks if they have a strong conviction of achieving success. If an entrepreneur has tried the usual options but not had any luck, one option is to use personal savings. You can start to sell some of the possessions that you can buy again once you have the money.
There have been numerous startups that have been established without any loans or grants. You do not have the burden of meeting the demands of the lenders or investors. But raising capital is a full-time task and can prevent you from focusing on other matters of business.
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How can I Get Funding for my Small Business?
Owning and running a small business is a dream of most people, but it can be quite daunting. Today, even a small business can function with lots of creativity and achieve success. But one thing that all comes down to is finding the best funding for small business startup.
Financing is one of the most crucial factors in starting a business, and finding the ideal funding source is another challenging task. The key elements on which funding depends is your business plan, financial projections, and how compelling your business idea is.
Every small business is different, and no one funding option fits all. The current financial situation and the extent of your business will shape the financial future of your small business. You need to keep an open mind and be flexible if you are looking for initial capital for starting a business or want the fund to expand the business. Some of the simple ways to fund small business are
- Try to Fund Yourself
Most small businesses want to retain complete control of their business and avoid any ownership sharing. The small business owners try to raise funds on their own as they already have limited financial resources and do not want to get tied with the strict requirements of lenders and investors.
Boot-strapping is a popular term used for self-funding. The different ways to raise funds on your own are using your savings account or leveraging personal assets.
- Ask Family and Friends
A quite effective and easy way is to ask for funding from the people you are close to. Your family and friends know you and will believe in your vision, and love to support you. But you have to be careful about the money you will be borrowing as not repaying the borrowed amount can strain the relationship. The key is to ask for money for temporary purposes while knowing that it will not be lost. Once the business starts to deliver profits, you can return the money you borrowed.
- Apply for Small Business Loans
Not every small business owner has a stellar credit score, and one of the most important factor to get a loan from a bank is having a good credit score. The small and startup business needs first to show creditworthiness, a sound business plan, and achievable projections. However, government backed firms such as SBA offer the best small business funding that is easy to qualify and has better loan terms.
- Consult an Angel investor
One of the fairly recent trends that has gained massive popularity is ‘angel investor,’ as discussed earlier. It is quite an effective way to raise money, but you, as a small business owner, have to return the money with interest. Both angel investors and venture capital may attract small business owners, but you have to share ownership of the company in both cases.
The best thing to do is to know the business plan and back up the investment proposal with an accurate valuation and real projections. The ideal funding allows small business owners to maintain productivity and keep the emphasis on building profitability.
Get a Business Plan Funded
Hundreds of different small and startup businesses strive to obtain funding to establish, sustain, or expand the business in a vast business environment.
The most crucial element on which funding depends is the ‘business plan’ that portrays the complete plan and strategy the business company will work on. The business plan helps to evaluate how much money is needed, where it will be utilized, and when it will start to give the expected returns.
Most lenders and investors look at the summary of the business plan and the pitch made to secure the funding. Many private banks ask for a business plan in the loan application, and the same goes for SBA loans.
Some of the tips to consider to get funding for your business are
- Approach and consult a reputable and reliable funding resource
- Get everything in writing, in the form of an agreement, and authorize it legally
- Do not spend all the funding at once but first carefully analyze the most pressing matters at hand
- Only ask for financial support from family and friends as a last resort, as in most cases, when there is a business failure, there is also the risk of losing the support of family and friends at the same time
If you have to write the business plan for the first time, it can be a daunting task as there are many things to consider and the added pressure of getting the funding approved. However, few consulting firms offer valuable help and support in preparing a business plan to get funding.
If it’s a startup or small business, then there might not be any adequate financial history available. On the other hand the lenders and investors will want to know what the company does. An entrepreneur and small business owner have to expertly deliver the vision of the company and its expected revenue. The common SBA 7(a) and 504 loans require a proper business proposal that can satisfy all the loan requirements.
To get funding for a business plan, you have to share the objectives and goals of the company. The important element is explaining the current situation, the need for funding, future projections, and loan repayment. One key aspect of attracting potential lenders or investors is providing the business opportunity that your company can avail if funding is provided.
The best way is to share your market research, the number of potential customers that the company can reach, and the potential sales that can enable profit. You have to clearly define the loan requirements, how the funds will be utilized, and repayment terms.
The personal and financial information that lenders and investors require for startup business funding include
- Loan amount
- Purpose of the loan
- Personal and business credit score
- The legal entity of the company
- Industry and business license and permits
- Employer identification number (EIN)
- Balance sheet and bank statement
- Legal contracts and agreements
- Ownership structure
The best thing is to keep the proposal brief and customize it according to the lenders or investors the proposal will be pitched to. Apart from the business proposal, the investors mostly look for passion and confidence, and the belief shown by you that the business will be successful.
Complete 360 is a consulting firm that offers wide range of services from marketing, consulting, and coaching. We can help you whether it is enhancing visibility on the internet or fund raising for a small business. At Complete 360 we know the need of raising capital for small business owners and young entrepreneurs. We have an expert team who can efficiently utilize the options of Crowdfunding, Crowd lending, and Angel Investors for You.
Your desired business funding is just a call away
Get in touch with us & avail your business Funding Now