Start Up Funding
Securing startup funding can be challenging, especially if you work with a traditional bank. Banks can be very particular about what business loans they approve. Many new businesses struggle to meet these strict lending requirements.
It is for this reason that many new entrepreneurs seek to acquire a new business via a franchise system or independent business. Obtaining loans to acquire a start-up franchise business has a far greater likelihood of success.
However, there are plenty of startup business funding options available outside of banks and more traditional lenders. Knowing your financing needs and business goals will help you choose the right type of startup funding.
There are eight (8) main types of funding for startups: self-funding, friends and family, grants, pitch competitions, customers, investors and loans.
1-Self-funding: Using your personal savings or rolling over your 401K is the way many start-ups fund in the early stages. If you have enough personal savings, you may choose to self-fund, or bootstrap, your startup. The downside is the possibility of losing your savings if your business fails.
2-Friends and Family: These may be your initial customers, angel investors or simply provide a gift to you as you build the business. Critical for this to work is sharing your business plan, keeping lines of communication open and being clear about expectations. Did the family member give you a loan, investment or was it a gift?
3- Grants: Grants are funds that you do not need to pay back. Grants are provided by cities, counties, states, foundations, universities and the federal government. If you fall into a niche group —such as female, veteran or minority business owners — you should definitely investigate grants.
4-Crowdfunding: There are a wide varieties of crowdfunding options to choose from. Some include donation, reward and equity crowdfunding. Each has their pros and cons. The key to an effective crowdfunding campaign is a community or crowd of supporters that are willing to make a contribution or invest in your business.
5-Pitch Competitions: Pitch competitions are an ideal source of non-dilutive funding for start-up businesses and a way for start-up businesses to make a name for themselves and a lasting network. This is the type of funding you do not have to pay back and is a tried and true path for many start-ups to get foundational capital for their businesses.
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6- Investors: Angel investors and venture capital firms look to invest in startups with high growth potential. This form of startup funding doesn’t involve monthly payments; however, it will likely require you to give up partial ownership of your company. Some investors will want to take an active role in the decision-making process of your business, while others will take a more hands-off approach.
7-Loans: Loans you to retain full control over your startup; however, you must repay with interest. Most traditional lenders, such as banks, will lend only to established companies with strong financials. As a startup, you may have to look to other sources.
8- Customers: By far, the best way to get your start-up funded and off the ground, is market traction with customers. This requires strong marketing and sales strategy and execution.
To determine the right type of startup funding for your business and improve your chances of receiving it, follow these steps:
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How much funding do you need? Determine how much money you need before you start submitting applications or reaching out to your network.
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Develop a strong, financially sound business plan. Many potential investors will require a business plan. This document should outline your business model, funding needs and how you plan to turn a profit, among other things.
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Compile key documents. These can include business and personal tax returns, bank statements, business financial statements and any legal documents relating to your business (such as articles of incorporation, a commercial lease or profit and loss statement).
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Decide which type of funding is right for you. Do your research to make sure you understand which type is best for your business and then target your applications accordingly.
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Create pitch, sales or investor decks. These are critical for getting your start-up noticed and funded.
If all of this seems overwhelming to you, please reach out to New Day. We have a team of advisors that can help you with every step of this process.
Do not go it alone, waste valuable time and money and end up aborting your business dreams. Call or email us today.