Category: Funding

We admire and encourage anyone who wants to create a company. However, it’s not easy. Don’t let money stop you from pursuing your dreams. If you want to start your own business but don’t have the funding, you can still get it off the ground in a number of ways.

In fact, only half of small businesses in the United States will survive through their fifth year of operation.

• Furthermore, just 30% of those businesses make it through ten years.
• Based on this information, it’s clear that failure is more frequent than success when it comes to startup companies.
• So we commend you for wanting to pursue this path.
• While running a startup may be difficult, it’s also extremely rewarding.
• You’ll learn a lot along the way. There are plenty of things you wish that you knew before starting company.
• But getting your startup off the ground is the first step.
• Like with most aspects of business, you’ll need some money to do this.
• If you’ve never been through this process before, it may seem intimidating.
• Not sure where to start?
• In fact, you can get money from multiple sources.
• We’ve outlined different ways for you to get your startup funded below.
• We’ll let you decide which ones are best for your startup company.

Create a detailed business plan:
Before you do anything else, you need to have a clear understanding of how you plan to operate your business.
A business plan will increase your chances of securing funds:
Companies that have a business plan also have higher growth rates.

Here are the main sources of your funding:

1. Visit your local bank or an online company
2. Seek help from friends and family
3. Venture capitalists (VCs)
4. Angel Investors
5. Crowdfunding
6. Dip into your personal savings
7. Look for a strategic partner
8. Try to minimize initial business costs

Conclusion

• Starting a new business is exciting. But it’s not cheap.
• Not everyone has enough money to get their startup company off the ground.
• If you can’t fund your business on your own, try getting a loan or line of credit from your local bank.
• You could always ask your friends and family for help.
• Venture capitalists, angel investors, strategic partners, and crowdfunding platforms are also great options to consider.
• It’s important that you always start with a strong business plan.
• Come up with realistic financial projections.
• This will make it easier for you to get money from investors.
• You also need to keep all your costs as low as possible to make your funds last until you can get a steady income stream.

Follow these tips, and you’ll be on the right path toward raising money for your company.
Good luck!

The answer is both ‘yes’ and ‘no’ depending on your business type, business model and bank’s policies.

The major points you need to understand about banks, when it comes to small businesses, are:

• Banks are responsible for other people’s money and have several policies in place, so they avoid risk as much as possible.
• Banks often have lengthy and stringent rules when dealing with customers
• Banks mostly offer only loans; they rarely participate in equity or other types of financing
• Banks look at assets and balance sheets, they don’t normally offer loans based on ideas or business plans
• Banks try to earn a predictable and long-term income on their operations

So, by now you probably guessed if banks are the right destination for your project’s financing. If you are a more traditional business house with a long history of business success and acquired some assets and have a stable balance sheets, banks are for you.

If your business exists only in your mind and on paper, you can safely forget about banks.

There is a chance that your bank is startup friendly and is participating in some sort of funding programs as part of some economic drive, but they are more likely to entertain a brick and mortar business that is likely to acquire a few physical assets, rather than backing a company involved in creation of a digital product or service. And you get only a loan, not equity. Check it out with your bank’s representative about the financing options that they have for your kind of business.

Sometimes, if a small personal loan is enough for you to get started with your startup, then you can consider it if the interest is not too high. As investors, banks enter only after your business has shown some traction and stability. But there is some chance that you may still get financed by a bank based on your industry and your product. It is always better if you check with your bank first.

Follow these simple steps; it only takes a day or two to find out if your bank has something to offer you. It’s a lot better than chasing angel investors or VCs.

• Go to the banks you use for your personal banking needs or explore an online company.
• I recommend starting with your local bank (if you use one) because you already have a relationship with those companies.
• Set up an appointment with a loan officer.
• Show up to your meeting prepared.
• Dress professionally. Bring your business plan.
• Explain to the loan officer how much money you need and what it will be used for.
• Depending on your situation, you may qualify for loans for certain aspects of your business, such as equipment.
• If the bank denies your small business loan application, you could also try to get a personal line of credit from that institution, or from an online company.
• You can use that line of credit to fund your initial business expenses.
• Don’t quit after your first appointment.
• You could try other banks and financial institutions if your first stop is unsuccessful.

Don’t get disappointed if you didn’t find any help from banks. Banks are more oriented towards consumers and assets, and definitely not the best places to look for financing your startup. Also, banks don’t understand newer technologies or business models. So, don’t really worry about the outcome with banks, there are several other options for financing your startup.

Your friends, relatives and family are your greatest supporters in life. They love to join with you in any kind of fun or activity. It’s a natural bond. Not surprisingly, friends and family are the second largest investor group in the USA, putting a staggering $60 billion which is more than what angel investors, VCs and banks put together at $56 billion. The biggest source of funding is the entrepreneur’s own savings and credit, amounting to $185 billion.

So, you can turn to your friends, family and relatives to make them a part of your venture because,

• These are the people who love you and trust you.
• Most importantly, they believe in you and your potential.
• Don’t be afraid to ask your loved ones for a loan.
• Plus, unlike with a bank, you’ll likely be able to get some money from your friends and family without having to pay any interest.
• Who knows if you’re lucky, you might even get funds as a gift.
• So talk to your parents, siblings, grandparents, or even your rich uncle.
• Just know there are some risks associated with this approach as well.
• You definitely don’t want to take a loan your friends gave you in good faith and lose it.
• That could put both of you in a very uncomfortable situation.
• Loans from their family contributed to their success because they had extra motivation to not lose the investment.
• They didn’t want to let their loved ones down.

And also this is the easiest and earliest funding route for you, when you are still not ready for the professional funding from angel investors or VCs.

However, you need to be aware of a few things when you are raising funds from your close circle of friends.

• Your friends or relatives are not any professional investors. They don’t understand a thing about entrepreneurship or what you are doing. They invest into your venture because of your relationship with them than anything else. So, you need not lie about your business or its returns. Just tell them about your business in plain terms and ask for their help.
• Always make them understand that they could lose money and may never get paid back, if your business fails. Make sure that they realize this and are putting only a portion of savings into your business, not their entire life’s savings.
• You need your relationships all through your life. So, don’t create a situation of mistrust with them.
• You may take help in the form of loan, gift, investment or money in exchange for some favour. In any case, pay some interest or offer some small incentives to them or celebrate with whenever you had some major success. This will improve your relations, and they will stand firmly behind you.
• Always be fair, acknowledge their contribution, make sure they get what is promised to them, and they are happy with it. A later stage investor may benefit more than early stage investors like your friends. It happens often times because of the very nature of funding. In such cases, make sure that your early investors like your friends and relatives get their due recognition and are paid equally like other investors. Because they trusted you before anyone else did, and they are the least selfish about it when they entrusted you with their life’s savings

At the end of the day, you have to balance between work and life and don’t want to mix them together. Nor you want to spoil one thing for the sake of the other.

It takes several years of pious life and severance from worldly joy before angels appear to mortals, according to many religions. But you will be a bit relaxed to know that angel investors can appear somewhat early in your entrepreneurial journey and can save you from several possible miseries.

For many entrepreneurs, VCs and angels look the same. They can’t really find the difference between these two except for their entry points into a venture and the amount of money they invest. However, VCs and angel investors differ a lot. Let’s see how…

• While angel investors can take an equity share of your start-up in exchange for their investment, their funding can also be exchanged for convertible debt.
• It’s not uncommon for these investors to be entrepreneurs or former entrepreneurs themselves.
• Although money is their motivation, they are more likely to be genuinely interested in your business as well as the growth and development of particular industries.
• If you find the right angel investor, you may benefit from their expert advice and management skills.
• It’s more common for angel investors to supply funding to businesses when they are still in the early stages, whereas VCs typically look to get involved a little later.
• Unlike a VC firm that has a committee and advisors working together, an angel investor may make a decision on their own.
• They may simply like your plan, trust your goals, and believe that your business will be successful.
• That’s why it’s important for you to be able to articulate your business plan well.
• A short meeting over coffee or lunch with an angel investor might be all it takes to get them on board to fund your start-up.

Now you started seeing the typical angel investor,

• Someone with high education from an Ivy League college or similar
• Someone who had a few decades of successful career in top companies or someone who successfully exited a few businesses
• Gained immense managerial experience and is well-connected
• Amassed or inherited a lot of wealth, but don’t want to spend it on paintings or luxury cruises
• Someone whose success is often seen only in his association with companies or teams he worked with, but wants to make a name for himself as a thought leader or mentor or a managerial practitioner
• Most importantly, someone who is willing to put his own money at risk

So, angel investors want you to share your uncertain dream with them, to make up for a long and often boringly successful career he or she had. Your venture excites them as much it excites you. They need something to play around with and watch it grow. Obviously, it’s not the reward that entices them, it’s the challenge that they never had before. It’s something like a rich man trying to understand what hunger really is and trying to figure out how to earn his bread.

Angel investors like to operate mostly within their realm of expertise, but they want to solve problems arising out of various business scenarios. Entrepreneurs can greatly benefit from their experience and managerial skills.

In the next few articles, we will explore how to approach angel investors, and we will also discuss different types of angel investors, such as individuals, networks and super angels.