Funding To Start Up A Business
One of the primary and most difficult-to-overcome challenges entrepreneurs face when starting a new business venture is obtaining the finances to set up the business. Regardless of how innovative, novel, or groundbreaking a business idea is and how hard the entrepreneur is willing to work on it, the absence of a proper and perpetual source of funding for the new business venture can lead to business failure. Many ventures have to be scrapped even before the kick-off because of insufficient funding. Furthermore, even if an entrepreneur is successful in acquiring a source of financing for their venture, relying solely on the said source can have dire consequences for a business in its infancy. By drawing from diverse sources of funding, not only can the business be safeguarded against predatory loaning but also strengthens the contingency plan of the business.
How do I get funding for a new business?
That being said, we now look at the most commonly available and availed sources of finance used by new businesses:
1. Personal savings, income, and assets
The first and foremost source of finance is usually a given- the entrepreneur’s savings, income, and assets. Not only does personal financing give a new venture the kickstart it needs, but it also shows later investors and bankers that the entrepreneur is confident in their business and willing to incur personal liability for its success.
2. Venture Capital
Additionally, while not suitable for everyone, many new startups can benefit immensely from venture capital: an investment in a profitable business that shows high growth potential. In turn, the venture capitalists expect a high ROI as well as some share of the equity in the business.
3. Angel investors
Next in line are angel investors, who are the person(s) that invest their money into SMEs in return for a supervising role over the management and running of the small business. However, one does not simply run into an angel investor; most like to stay under wraps, and you can only contact them through highly specialized associations.
Business incubators are another source of financing a startup. They allow promising new businesses to share their knowledge, resources, and facilities to help startups cut the costs of running the business.
4. Grants and subsidies
The government’s grants and subsidies can also serve as funding for startups. However, the drawbacks of such a source include stringent requirements for eligibility, intense competition, and sometimes the grant may not be relevant to the entrepreneur’s venture at all.
5. Bank loans
Finally, bank loans are perhaps the most often used source on this list, especially for SMEs. To get loans from banks, the entrepreneur must have a strong credit score; business results to assure the bank they will not default on the loan; submit collateral; and a sound and actional business plan that shows promise and potential for growth.
How to attract investors to invest in a new venture?
However, it is important to mention convincing investors to invest in a new venture is no easy feat. Some ways of doing so are as follows.
- Firstly the new company should have a robust business plan that leaves little to no room for failure in practices and processes so that investors know that their investment will not sink.
- Secondly, there must be proof of adequate market demand for a new product that ensures investors that the product will sell.
- Another way to make a solid case to get investments is to show that the business has been successful in the first few weeks or months since take-off.
- Finally, promising a return on investment that will make investors a profit on the money they injected into a new venture is instrumental in reeling them in. (2)
Check the following reference articles to learn more about funding to start up a business:
- 7 sources of start-up financing. (2021, August 3). BDC.Ca. URL
- Martins, A. T. (2021, February 16). 15 Tips on How to Convince Investors to Invest in your Business. ProfitableVenture. URL
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