Nowadays, anyone can start a startup, regardless of background or what you do now, even if you are a salesperson in a company or have your own small team of essay writers.
While having a great business idea is crucial, getting enough funding to get started and grow it is very important. Many founders funded their startups with their savings or got a loan from family and friends.
Still, there are several other options you can try to raise funds for your new venture. However, you should understand that raising money as a startup is not easy and may take longer than expected.
The article will review ten early-stage funding options that a founder can consider.
1. Angel investor funding
An angel investor is a person who invests in a new startup. The individual or group of networks reviews your business proposal before investing in your upcoming startup.
In addition to funding your company, angel investors will guide and assist you along the way. Experienced entrepreneurs will help you save a great deal of money in the long run.
Companies like Yahoo, Google, and Alibaba are among the prominent companies that were started with the help of angel investors.
2. Venture capitalists (VCs)
These are companies that invest in a company in exchange for equity. This is an excellent way to rain capital as a startup because you have no collateral to take a bank loan.
Establishing a good relationship with venture capitalists is beneficial because they can provide your company with industry connections to potential partners, customers, and top talent. They can also share knowledge and clear direction with you.
Obtaining venture capital funding can be extremely difficult because they invest in startups with high growth potential, with some advantages such as early customer adoption, a strong team of people, or a working product prototype.
You can put the full description of your company on a fundraising platform, and then multiple investors can raise money to fund your business if they like your idea.
In addition to raising money from multiple funders, crowdfunding can help your business promote your products and services. These people donate capital to your business in exchange for some form of profit, equity, one of your products or services, or more.
4. Peer-to-peer (P2P) lending
You can create an account with a platform that connects lenders and borrowers in this option. The website will maintain records, connect you with lenders, and transfer funds if you are successful. P2P is a great way for small businesses to raise money. This option, however, is only accessible in a few areas or states.
Governments provide funds to companies in disciplines such as science and research. Therefore, you must meet specific requirements to obtain a grant.
6. Incubator and accelerator programs
An incubator nurtures the business by providing training, tools, and networks. On the other hand, an accelerator helps the business make important decisions and grow.
These programs require a time commitment during the 4 to 8 months, but you will benefit from the good connections you create with investors, mentors, and startups.
You can enter a contest that receives business ideas in exchange for a prize. Registering to enter a contest is a great way to raise money and give you some media coverage.
So, prepare a business plan or build a product, then register to enter a contest where you can share your business idea.
8. Invoice financing
Also known as factoring, this is where a service provider gives you some money upfront based on outstanding receivables and then reimburses you once your customers settle their invoices. This arrangement gives your business some cash flow to help you continue to operate while you wait for your customers to pay.
That means your business can close the gap or have a steady cash flow to continue taking on new projects.
9. Small business credit cards
Small credit card issuers target small businesses and have special benefits such as airline mileage and cashback rewards.
However, the issuer will rely on your personal credit history and credit score. In addition, any late payments or defaults will hurt your personal credit rating.
10. Merchant Cash Advances
This is a quick way to raise capital, although it is very expensive. Therefore, cash advances should be your last resort because the merchant takes a small portion each time you make a sale until you pay off the advance. This option should not be your long-term strategy for raising capital for your new business.
Advantages of alternative lending
Securing financing through other means, excluding traditional sources such as bank loans, has several advantages. These include:
General business guidance
The strategic partner will offer you additional help in addition to capital that includes knowledge and connections. Their perspective and advice are invaluable because they have the experience needed to guide a new business.
The investor will not only join your board but will likely share your finance, human resources, IT, and marketing team at a favorable rate.
Your strategic partner has been in business for several years, has built a good reputation, and has created an extensive network in the industry. Therefore, obtaining funding from angel firms or venture capitalists allows you to leverage their goodwill.
Although the partner will guide you along your entrepreneurial journey, they are more likely to be involved in managing your other businesses. As a result, customers will rely on your periodic updates rather than your company’s day-to-day operations. This will give you the freedom to manage your business.
Just like other businesses, your startup requires working capital to thrive. Therefore, you can raise capital by choosing any of the ten startup financing options.
Gather the right market information about each financing and establish the best financing option for your unique circumstances. This will increase the likelihood of your startup’s long-term survival.
In addition, building a good network with investors will help you find the right strategic partner who will provide you with capital, connections, knowledge, and guidance. In some situations, they may share their resources, which will give you a good foundation for your startup business.