7 funding sources to raise capital for a business
So you want to start a business and need help figuring out how to get that startup cash? Here are seven funding sources to raise capital to start your own business.
This is the simplest source of funding for entrepreneurs kickstarting a business. This way is safe and effective as it won’t leave you in debt if your business fails. The drawback here is the time it takes to save up the funds needed. Certain businesses may need thousands or even hundreds of thousands of dollars of funding. This can take decades of saving for some people to come up with. So, many instead choose the speedier options below.
Venture capital or stock option funding
Venture capital or investment have become one of the biggest sources of funding for business startups nowadays. Here, you pitch your idea for a business to individuals who have enough money to finance it. Then, you offer those may be interested a share of the profits and a say in how the company is run.
The perk of this approach is the quick way in which you can get the money needed to set up your business. This method is particularly useful for those in industries with a high startup costs, like in green energy and medical industries. It’s also good for certain other industries like tech, which these days have relatively low startup costs but potentially very high returns. Of course the money you raise isn’t free, there are drawbacks as well, that come in the from losing both complete control and the money you can make, from your company once it’s up and running.
So, like all other options on this list, you should compare the perks and drawbacks to see if this source of funding is right for you.
Crowdfunding is the practice of funding a project or venture by raising many small amounts of money from a large number of people. Often times crowdfunding is associated with sites like Kickstarter and Indiegogo that let you pitch your idea for a product/service and receive pledges from people and in return the funders receive rewards/perks. The rewards/perks can come in the form of early access to the product or special promotional materials. There are also sites such as SeedInvest that allow people to invest in your company for shares of equity/ownership.
Initial Coin Offerings (ICO)
The latest trend in fundraising is to offer what is known as an initial coin offering otherwise referred to as an ICO. An ICO allows startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks. In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies (usually Bitcoin or Ethereum). ICOs are not currently regulated, however, the SEC has began to take a serious interest in them due to some ICOs resulting in fraud. We’ve talked in the past about the future of ICOs and whether or not they should be regulated.
Loans are a great middle ground for those looking to finance a business. They offer a quick and easy way for you to get the needed funds for your company. But, they don’t require a share of your company or a share of the creative control.
So, once you’ve paid off your loan, you’re free to enjoy all the profits from your business. They’re also an increasingly diverse option. You can refinance your house, apply for a personal loan, or even check out title loans. You can do this all online too from sites like TFCTitleloans.com.
The only drawback here is the cost of the interest rates on the loans. So, make sure you do your homework to get yourself a good deal if you’re choosing this option.
Part-time jobs or side hustles
This is a popular source of funding for younger entrepreneurs. Getting a second, part-time job can help you accumulate enough money to put into a new business. This can help you bring in more money quickly, without needing a loan or investor. But, it will require more work and can be time-consuming. This makes it a better fit for younger entrepreneurs who may struggle to get approved for a loan.
Grants or bursaries
Part of the rise in the popularity of entrepreneurship has come from government support. Small and medium businesses can help boost a country’s economy. Because of this, the government is often happy to support the creation of new businesses. So, there are usually plenty of grants, bursaries or government-sponsored loans with low interest offered to entrepreneurs. These have next to no drawback, other than a potentially unsuccessful application. They can also make a great addition to another option on this list for added funding for your new business.