“What do you need to start a Business and suceed? Five things: have a product people want, get the word out (so people know about it), have funding to survive, until you start making a profit & the persistence to hang in there – until all this happens” – Peter/CXO Wiz4.biz
Finding Funding Topics: Niche, Self, F&F, Cust/Sply, P2P, SBA, Factoring, Crowd, Lease, Sweat, Angel, VC, Grants, Loans, Accelerator/Incubator, Platforms, Networking
Entrepreneurs are full of great ideas and many ways to implement them. but like anything in life, starting a new business requires BiG Bucks. Finding the money to start their small businesses is usually one of the first problems that entrepreneurs face. For most people, this process can be hard and very frustrating. What makes this process frustrating is a combination of unrealistic expectations and looking for money in all the wrong places. Remember that finding the money to start your small business is a game of endurance. You must work hard to overcome lots of rejection – if you want to succeed.
#1. Consider your Niche
Chances are, there’s something special about your idea. There are Grants tailored to either specific business owners or specific business ideas that can help get your idea off the ground. Defining your niche will have an additional benefit. As you seek out funding, you’ll be able to summarize in only a few words what sets your business apart from others. Research any investors you approach to discover those financiers that have a particular interest in what your business offers.
Whether you have ample assets or don’t believe in borrowing money, there are many reasons to self-fund. You will remain completely in control of your business. You can make all the decisions and are free to do as you please. But it comes with a major Risk entrepreneurs often overlook. If you go the self-funded route you may miss out on the valuable guidance of experienced Venture Capitalists. It’s just you and your potentially narrow-minded way of thinking.
a) Your Savings
This source of financing can be ideal – if you can afford it. It puts you in full control of how much you are going to get. Furthermore, you never have to justify yourself to Investors. This last point is an important benefit. You have the freedom to operate as you see best. There is a trade-off, though: this freedom usually comes at the expense of having little money. Saving up to start a business takes determination & sacrifice. Save a portion of your income every month. Save as much as you can for as long as you can. You will need every dollar you can get your hands on. Consequently, you may have to give up luxuries – such as vacations & new cars – for a while. The reward is the ability to launch your startup and the satisfaction it will give you
b) Your own Credit
Many entrepreneurs also use their Credit – either through Credit Cards or a Home Equity Loan – to start their small businesses. Be very careful about using these sources, as you could ruin your personal Credit, risk your home, or both. If possible, avoid using a home equity Line of Credit – as the risk is too high. Credit cards are best used to pay Expenses that are directly related to a project. Once the project is completed and the Client pays, pay the Credit Card back. It’s best not to use Credit Cards to pay for startup company expenses that are not related to a specific revenue-generating project. This strategy limits the chances of something going wrong that could damage your credit.
#3. Friends & Family
If you have supporters among your friends and family who are willing to help with some of your expenses, this can be an appealing option. It’s probably the option on this list that offers the most flexibility & patience. However, borrowing from these requires strong relationships to weather the inevitable ups & downs and not ruin your relationship. If you start your small business using friends and family investors, decide whether to sell them equity or take a loan from them. Both have advantages & disadvantages. Investments from selling equity don’t have to be paid back. However, the person to whom you sold the equity becomes an owner and shares the profits.
#4. Customers & Suppliers = later
a) Customers can finance your business by pre-paying for orders – or by giving you an advance. Obviously, you use these funds to handle their transaction. This funding is not easy to get, but customers may be willing to pre-pay if your service is unique enough or if they really need your products.
b) Suppliers give your company 30 to 60 days to pay an Invoice. Getting Supplier Credit is similar to getting “interest-free” Financing for 30 to 60 days.
#5. Peer-to-Peer Lenders
P2P Lenders offer a platform that allows people to seek financing from other individuals. The P2P platform acts as a matching service + provides basic due diligence. Like MicroLoans, most P2P loans are small. They usually cap at $25,000 – $35,000.
#6: SBA Loans
One great source of small business funding is the Small Business Administration (SBA). It has a special program that offers MicroLoans to small business owners. They can reach up to $50,000 and are much easier to get than conventional financing. They also come bundled with business Training which can be very useful for first-time entrepreneurs. The SBA also works with banks to provide 7(a) loans. These loans are larger that MicroLoans and have stricter under-writing criteria.
#7. Factoring companies
Most small businesses encounter financial problems because their commercial clients ask for payment terms. As a small business, you have to give them 30 to 60 days to pay an Invoice. Otherwise, you could lose the client. The problem is that most small businesses cannot afford to wait up to 8 weeks to get paid. You can improve your Cash Flow and get paid sooner by “factoring” your Invoices. Factoring allows you to finance slow-paying clients, which provides your company with immediate working capital. You can use these funds to operate the business and get new clients. Transactions settle once your client pays their invoice in full.
The advantage of factoring is that it allows you to finance your business by leveraging the commercial credit of your clients. This method is a great option for small businesses with a strong roster of clients.
C$F is potentially one of the best new tools helping the economy–lets just about anyone make a difference by contributing money to the innovations & businesses they feel deserve it. A successful C$F campaign requires a significant amount of time & dedication to get the backing you need–and then to fulfill the pre-sold orders you’ve promised and not squander the good will you’ve got.
Small businesses in certain industries need equipment to get started. Most equipment leases are structured so that the finance company buys the equipment and rents it to you for a monthly payment. Once the term of the lease concludes, you can buy the equipment from the finance company for a fairly modest cost.
Warning: Sources that usually don’t work !!!
Before finishing this article, I’d would like to discuss 4 more common funding sources. There is nothing wrong with these sources, per-se; rather, they are just not the best source of money to start a new small business.
#10. Bank Loan – later ?
Banks lend only against assets. Unless you have a business with assets or you have substantial personal assets, you will not qualify for a commercial Line of Credit or Loan. However, Bank Loans may be a good source of funding later on, once your business has grown.
#11. Sweat Equity
Although easily overlooked, exchanging a share of ownership for someone’s contributions is a form of funding. It certainly isn’t appropriate for every business, but like other options, it comes with its own pros & cons. One Benefit [1B] of Sweat Equity is that you don’t have the pressure of someone else’s funds driving your expectations. Also 2B – if\when you succeed – you still retain the largest possible share in your venture. The obvious drawback, of course, is that this isn’t the route to cold, hard cash upfront and it’s unlikely to jumpstart your growth.
#12. Angel Investors
If your company doesn’t need a large round of funding, an Angel Investment may be more appropriate. You’ll retain more day-to-day control of your business than you would with VC funding. First investigate what kind of visions & ROI goals potential Angels have, to make sure your own goals align.
#13. Venture Capital
The world of VC offers larger amounts of funding – as well as access to a wealth of resources. Every start-up can benefit from mentorship from highly connected, experienced VCs. But not every entrepreneur is comfortable giving up some control and their strategic vision in exchange. Make sure you are before you pursue this route.
#14. free Government Grants
Usually, the government does not provide Grants to start or operate a business, unless your business is in a specific industry or serves a very targeted cause. The government is investing your tax dollars and is very strict & careful when spending them. The government won’t be able to help you if you need money to: a) start a Business, b) pay Operational expenses, c) settle business Debts. Unfortunately, trying to get this type of funding is a waste of time for most people. Your time is better spent looking elsewhere.
#15 Bank Loans
At one time, Entrepreneurs often started their search for funding at the Bank. Good luck with that nowadays. The lending climate is extremely tight for first-time business owners. Many choose to take out a Personal Loan or personal Line of Credit – if they cannot receive one in their Business name.
#16. ACH Loans & Merchant Advances [MCA]
Automated Clearing House [ACH] Loans & Merchant Cash Advances allow you to finance future sales. ACH Loans are used to finance Commercial Sales whereas MCA is used to finance Credit Card sales. You pay back the Lender by giving them a portion of your monthly Credit Card sales, or by allowing them to “debit” your Bank account through the ACH system (direct debit). The problem with these products – and with financing future sales in general – is that future sales are difficult to forecast – making these loans risky to the lender and expensive to you. We actually suggest you don’t get an ACH loan until you have spoken to a qualified Financial Adviser.
#17. Accelerators & Incubators
AI (not Artificial Intelligence – altho’ you could use some here) are a great way to get Startups off the ground– while gaining access to Resources & Mentorship.
a) Accelerator acts as a jump-starter for your company, offering work space, mentorship, & a modest cash investment.
b) Incubators are good for entrepreneurs who are still fleshing out a business idea, as they usually include a longer period of time to get your feet on the ground, Winnick says.
#19. Startup Launch Platforms
There specific platforms that provide information, research, & assistance with all aspects of getting a business launched, including ways to connect with investors.
#20. Networking . . .
is often the best way to connect with people who can help you get the start-up capital. (ie, meet with like-minded professionals on LinkedIn who may want to know more about your startup and take it from there) They may have some good connections to Funding sources.
Conclusion: Funding for startups is available in all sorts of forms. An Entrepreneur would be wise to consider and evaluate all forms of funding available for each stage of the business. As the company grows & evolves, different forms of funding will make more sense and be available for that stage.
Comments: Do you know any other Sources for Startup Funding?
from Inc Zine, Com’l Capital, Forbes 4/19 enhanced by Peter/CXO Wiz4.biz
For more Info, click on Funding.