Having a great billion dollar idea for a new business or start-up is great – but now what? You probably need a website, a tech team, some office space, and of course, at least enough money each month to pay your rent.
Which means you need money. Whether it’s a cool new app or a fancy coffee, most businesses and most entrepreneurs need at least a few resources to really take off in their early days.
Read for a founder’s guide for the first time on where to look for funding and which type might be right for you.
How To Get Financing For A Startup Business
Start with Bootstrapping
When we start, many entrepreneurs use bootstrapping, which means financing your company, joining all the personal funds you can find. This usually includes your savings account, credit cards and any home equity lines that you may have.
In many cases, using the money you have instead of borrowing or raising is a great approach – in fact, some entrepreneurs continue to prepare until their business is profitable. This can be beneficial because it means you will not have extensive loans and monthly payments that will hinder you, especially if you come across problems on the way.
However, if you want to expand your business quickly, it may be advantageous to bring external sources of finance. So, what happens when your funds run out or you decide you need something else? This will depend on the type of business you are creating, but there are some common places to start.
Consider friends and family
Asking for money and money from your friends and family may seem like a daunting prospect – but taking a closer look at the people closest to you is often a good first step before getting external funding. And hey, it can never hurt to ask. Although Aunt Irene is probably not in a position to fund her entire dog social network, she may be impressed enough to give you a lot of money to help you get in (and go on the site to find some new mates).
Before you ask for money from your friends and family, you should have a business plan ready. That way, you can explain exactly what you are selling, what you plan to charge, how you will earn money and whether you are asking for a loan, an investment or a gift (for example, if they should expect to get back the money they invested in your business and, if so, how much).
Explore alternative sources of funding
If you are looking for a relatively small amount of money (from $ 25 to $ 5,000), there are some microcredit organizations that lend to start-ups and entrepreneurs such as Kiva and Accion. These sites cater to low-income entrepreneurs in the US or those who work for social welfare (and some provide only microloans for those living below the poverty line). But if you think you can qualify, check out their websites for more information.
Another alternative is the increasingly popular crowdfunding sites like Kickstarter and IndieGoGo, which provide a platform to raise money from small, individual supporters across the web. You’ll set up a campaign and name a desired amount of money you want to raise, and create benefits for donors who promise a certain amount of money. Then you raise money for the campaign in a specified time period. With Kickstarter, you’ll only be able to keep the money if you increase the total value of your goal, but IndieGoGo will allow you to keep any amount raised (for a slice of the profits). For more information, check out our guide to choosing between the two and maximize your collective funding campaign.
Look Local
If you are launching a small business (instead of a technology startup that you see as the next Facebook), you will definitely want to check out your local small business development center. Many universities have one, and the Small Business Administration (SBA) alone has 63 across the country. These centers not only help connect you to groups of network entrepreneurs and angel investors for funding but can also help you determine what type of loans and funding you can qualify and help you apply. Your local chamber of commerce can also be a treasure trove of information and guidance in terms of where to get local funding. Many large cities have programs and organizations that exist just to bring business to the local community.
Consider borrowing
If you can show that you have begun to gain strength and make money (and that a loan would help you earn even more), you may be able to qualify for a traditional bank loan. Many banks, such as Bank of America and Wells Fargo, have recently announced an increased commitment to small businesses. Although each individual and banking situation is different, this can be a good bet if you want to find funds between $ 5,000 and $ 500,000.
Look at the angels
If you have a technology start-up, you’ll probably need more capital to actually start – hire people or get office space, for example – than bootstrapping and collective funding will allow. You will probably need to contact outside investors. A good place to start investors are angels, usually established business professionals with high net worth who are looking to invest in promising companies. Normally, an angel will invest from $ 10,000 to a few million dollars.
To find angels, ask other entrepreneurs in your network, or check out the Angel Capital Association, which has more than 330 groups of angel investors across the country. You can also look at AngelList, a website that helps entrepreneurs make connections with interested investors. So far, the site has helped more than 1,000 start-ups to be funded.
In addition to making direct loans, angel investor groups sometimes organize events or competitions that can help provide new entrepreneurs with new networking opportunities. Check your local community for these groups.
Venturing into Greater Capital
If you are looking for some serious financing (at least $ 1 million), you will need to use venture capital. Venture capitalists (VCs) are more likely to require a deep and secure business plan, but they can also give you greater amounts of money.
VCs typically invest in some different companies for their clients and expect to make money from one (or all) of them to pay for their clients’ investments. What this means to you is that they see all kinds of business – and you have to make yours stand out. Also, you should know that VCs are looking for a return between 3-10 times their original investment, usually within the next 5 to 7 years. Therefore, it is best to have an exit strategy in mind.
The best way to get meetings with VCs is through presentations from other entrepreneurs or investors, which means that if you’ve decided to apply for VC money, it’s time to take advantage of your contacts (and your networks) to see who you can talk to. No contacts? It’s another bet, but you can also browse the website of the National Venture Capital Association and direct your business to those you find a connection to. While calling a venture capitalist may not be the easiest task, it’s a place to start.
Conclusion
Finding finance can be the most difficult part of getting your business off the ground, but also the most rewarding. After you save, get approved for a loan or find other people to invest in your business, you can go back to your dream job or start it! While it can be a long road to success, finding allies along the way (be they friends, angel investors or venture capitalists) to help keep your business afloat can make all the difference in the world. Good luck!
