Starting any new business can be both exciting and challenging. A business cannot be started without adequate funds. Especially, securing funds for a fresh business is not an easy task. But, financing a startup need not be very difficult if we have a proper strategy and plan with us. There are various ways to secure finance for a startup and convert our dreams into a reality. Let us examine the different ways to finance a startup in a step by step guide given below:
Have a Concrete Plan
Before scouting for finance for a startup, we need a clear plan that will be a roadmap for any business.
Business Idea: This will contain a description of the business idea in simple terms. What is the business about? and what are the problems that will be solved?
Market Research: Who are the potential customers? What would be the demand for the product or service?
Competition: Who would be the competitors for the business? How will be the business different from them?
Business Structure: Will it be a sole proprietorship, a partnership, or a company?
Budget: How much money is needed to start and run the business?
Financial Projections: An estimate of the future income, expense and profitability is to be prepared.
Bootstrapping i.e. utilizing own funds
Bootstrapping is starting the business from scratch by using one’s own funds/resources. This is similar to preparing a meal with the ingredients available in one’s own kitchen. For more details about Bootstrapping, you are requested to read/refer a separate blog on ‘Bootstrapping a Startup business’ given elsewhere on this website.
Bootstrapping includes using one’s own savings, utilizing own assets or even relying on one’s current income to fund the startup.
Friends and Family
Just as borrowing a cup of sugar from neighbours, one can approach their friends and families for financial support. If they have trust, they will be willing to lend some loan to get the business started. However, if the business is strained or fails, the relationship can get sour. Also, it may not be wise to mix personal relationship with money and business.
Angel Investors
Angel investors are individuals or companies who invest in potential startups for exchange of an equity stake. They are like generous godparents who want to help and grow a startup business. This way, one can get an experienced mentor and expertise for running the business but this entails giving up a part of control in the business.
Venture Capitalists
Venture capitalists are experienced investors who have huge amount to invest in startups with a unique business idea and growth potential. They provide substantial funding in exchange for equity stake in the business.
Crowdfunding
Crowdfunding is to secure funding from a community like online community or from people in social media. This type of funding takes place through voluntary contribution from a section of public on their conviction in the concept of the startup. Many startups having an idea that can be beneficial to a social cause or for the welfare of the people may source finance through crowdfunding by asking the internet community to pitch in and make the business a reality. It’s a democratic way of securing funds, where one can retain the full ownership of their business.
Bank Loans
This is the normal way to borrow money for any business. Banks lend money to start a business on fulfilment of certain conditions in various forms. The loan has to be repaid with interest on completion of a certain period. The approval process of lending by banks may be lengthy and listed with many terms and conditions that may not be met by a fresh business. However, this is the most common way to fund a startup business.
A bank loan can be a reliable source of financing, but it usually requires a good credit history and a well-thought-out business plan.
Business Grants
Business grants are like winning a prize for a startup. Various Government and organizations from the private sector offer financial support in the form of small grants to promising business ventures. These organisations contribute a specified sum to certain startups on the basis of their business potential and background of the promoters of such startups.
Accelerators and Incubators
Joining an accelerator or incubator is like going to startup school with experienced teachers who guide the businessman through the entire process. These programs provide funding, mentorship, and resources in exchange for equity.
Accelerators and incubators can be valuable educational resources that help you grow your startup.
Strategic Partnerships
Strategic partnerships are partnering up with another business to capture the market together. In this type of partnerships, resources, expertise, and sometimes even funding are shared between the parties. This gives access to new markets, customers and resources. In simple terms, it’s like forming an alliance with another business to combine forces and succeed together.
Credit Cards
One can use their credit cards for financing a business if there is a substantial limit available on the card It can offer quick access to funds, potential rewards, and convenience. However, it has a drawback of high interest rates and entail a personal liability that can affect one’s personal credit score immensely.
Online Lenders
There are online lenders and NBFCs similar to traditional banks that offer quick funds in flexible terms. They provide various financing options through their digital platforms that may be convenient for a new businessman to borrow small funds initially to fund their startups.
Microloans
Microloans are small loans offered by some banks and finance companies that can help fresh businesses to get off the ground. These loans provide funding for startups and small businesses requiring small amounts to begin their business. In simple terms, microloans are like the small helping hands of the financial world, providing support to startups and small businesses with modest financing needs.
Fundraising Events and Pitching
There may be various fundraising events for pitching one’s startup idea to potential investors. These are ways to secure financing by convincing others to believe in one’s vision. These events can include venture capital pitches, business plan competitions, or even crowdfunding campaigns. for e.g. the highly viewed and popular reality show ‘Shark Tank’ which features budding entrepreneurs pitching their idea to reputed Venture Capitalists, Investors for funding in their ventures. This type of fundraising events and pitching offers opportunities to new businesses to tell their startup story and also inspire others to invest in their business dream.
Building a Diverse Financing Strategy
In startup financing, one size doesn’t fit all. The best approach would involve a combination of different funding sources. It would involve building a diverse financing strategy that combines several of the above options given in this guide. For eg; One might start the business by bootstrapping and utilizing their savings while also exploring small business grants and strategic partnerships. By diversifying one’s financial sources, they can reduce the risk and increase their chances of securing the necessary funds for their startup.
Starting a business is an exciting activity for anyone, but securing finance is a very crucial part of that journey. Even if the process may seem very difficult, there are numerous financing options available, but each come with its own pros and cons.
Therefore, its necessary to research and consider about the various financing methods available to align with one’s goals and their risk tolerance before opting for a financial source.
SHREYASS FINANCE, with its expertise in financial services, helps potential Startup businesses throughout India to secure Private Equity finance from Family Offices, Angel Investors and Institutions in a short period of time. Call us on 9967803324 or mail to shreycons@gmail.com