By Jonathan Feniak, Esq., MBA
When you're starting a business, a great idea can only get you so far: You'll need money to turn your idea into a successful enterprise. Unless you are extremely wealthy, you'll probably need some outside help to get the capital you need to get your business up and running. There are a variety of sources you can explore to raise money to fund your business ideas, and learning more about them can help you to choose which avenues make the most sense to pursue.
Crowdfunding allows you to fund your business idea by raising money from members of the public. Crowdfunding platforms like GoFundMe and Kickstarter allow people to donate small amounts and support business ventures all over the world. A simple way to start crowdfunding is by asking friends and family to contribute to your proposal. Friends and family have seen the effort you've put in and may be more likely to help you get your business off the ground. Many entrepreneurs get their first investments from friends and family members.
Angle investors have contributed to some of the biggest tech companies out there today. "Angels" are people who invest funds in a company that shows early signs of growth. In return, these investors receive equity in the company.
Tapping into your own resources instead of relying on investors is known as bootstrapping. This approach involves using your personal savings or taking out a loan. It's an efficient way to raise funds for your business without having to worry about giving up a share of your company.
Venture capitalists are like angel investors, but instead of investing their own money, they invest on behalf of a venture capital firm. They provide capital to companies with the potential for substantial and rapid growth in exchange for a stake in the company.
Microloans are like business loans, but they're issued in smaller amounts, typically up to $50,000. They help entrepreneurs who don't have access to bank loans or who need a smaller amount of money than their bank will lend.
The Small Business Administration helps to connect business owners with lenders and sometimes also offers grants to foster entrepreneurship.
Once you've started a business, you may still find that you need funding, even if the business is doing well. In fact, if your business becomes hugely successful, you may need to rapidly scale up your operations to meet demand, which can be hard to do without financial help.
A purchase order financing company can help you to cover the costs of producing products that you have already sold. With this funding method, the financing company pays your suppliers to get the products made, and once you've sold them and received payment from the customer, you pay the financing company back.
There are a seemingly infinite number of business competitions that can help you to fund your business. Numerous organizations set up contests to encourage creativity and promote innovation.
Pre-selling is about encouraging customers to buy a product or service before it is released. This means that you get payment before your products hit the shelves, which gives you the money you need to fulfill the orders.
A strategic partnership is a relationship between two companies that agree to support each other in an effort to help both parties succeed. Suppliers or distributors may give you credit that allows you to grow your business while sharing resources and technology.
Incubator programs provide mentorship, investors, and support to early-stage companies, giving them the opportunity to grow.
Never enter into any sort of financial arrangement without carefully examining its terms. No matter how much you need the money, some deals just aren't worth it.
Organized financial records can help you keep tabs on your business's finances and know what your needs are. You'll also need to show your books to potential lenders or investors if you want them to give you funding.
Before asking for funding, make sure that you can clearly outline your business goals and how an injection of cash will help you achieve them.
Be prepared to think outside of the box and be flexible about your options for raising the capital you need. You may need to get creative to make a successful pitch for funding or to come up with alternative means of fundraising.
When you're excited about your business, that helps to make the people you talk to excited about it, too, which can increase the odds that they'll agree to help you.