5 of the Best Ways to Fund a Start-Up
Government Funding Schemes
Depending on the country in which you live, it is not uncommon for various government entities to provide grants and loans to the younger population in order to help them start up their own businesses. Whilst you are highly unlikely to receive hundreds of thousands from your government, it is not uncommon for loans to be given for up to £30,000 or U$45,000. You simply complete the application process, which takes a couple of weeks to be approved if you are successful, and wait for the money to come into your account. Some schemes however will provide you with a loan as opposed to a grant, so make sure that you are going to be able to make your repayments otherwise you may lose funding and have your business fail. As part of most government schemes you are provided with a mentor, normally a successful entrepreneur themselves, who you can refer to with questions and ideas about running your business.
Probably one of the best options is to use your own money if you can afford to. This way you aren’t going to be indebted to anybody, you aren’t going to have to pay interest and various charges, and you have the freedom to take your business in whatever direction you may decide upon. However if you are using your personal finances, then you should ensure that you stick tightly to budget and you can afford to pay any other living expenses such as rent, mortgages, insurance, utilities and food, otherwise you are going to find yourself in a bit of trouble.
If you are looking to set up a business, with a unique selling point, in a market sector that has a proven track record of providing returns, then you may be best off looking for an angel investment or sponsorship. Whilst quite similar to a regular loan, an investor will have a financial reason to want your business to succeed and grow. As a return for their investment, the investor receives shares in the company, whereas a bank or loan provider will be happy as long as they receive their loan plus interest back and past that they don’t really mind if you succeed or fail. To make sure I’m not misunderstood, the investor will want their original investment back, however given their shareholding in the company the investor will be also looking to generate further returns past this and as such will require the business to succeed and be profitable. Taking this route is harder work than other options, however if you have the correct business model then there is no limit to the amount your angel can invest, and you will probably receive their expertise, guidance and contacts as well. You might end up having to make some phone calls, give a few presentations and execute some brilliant sales plan, but in the long term this is definitely one of the most promising methods of obtaining funding. As long as have a good idea and business model to deliver upon then this is not as scary a process as it could otherwise seem, I mean who wants to miss out on funding the next Facebook or Twitter? Both of these received angel investments in their early stages.
Crowd funding is a growing online phenomenon; it provides a system where everyday people, like you and me, can head over to crowd funding websites and invest a small amount of money in projects that we believe in and wish to support, in return we receive a small shareholding in the company, a guaranteed return of our invested amount, or our investment plus interest. Given the exponential amount of people contributing via crowd funding sites, it is possible to raise several thousands to support your business needs. However if you are indeed giving investors a share of your company, or promising them interest on their investment, you have to make absolutely sure that you have calculated the math correctly as you may end up giving away the majority of your business, leaving you without a say in how it’s run, or having to pay back more interest than you can actually afford.
Apply for a Loan
Banks and loan providers normally have two main reasons for providing solid business start-ups with a loan. Firstly, they make money from the interest they charge you, and secondly they hope to forge a longstanding relationship with you so that you use the services again if you ever require them; this of course makes them more money. To make sure you have a decent understanding of your own business plan, and to check that they will make their money back, the bank will want you to present your projected financial figures for the first few years of business. This is more of a reality check to make sure you are capable of running a business. What you should not do however is try to impress the bank with exaggerated numbers, because as said above, this is normally a test to check your sense of business. If you are thinking of looking at this option then it may be wise to go through a loan broker, as you only have to explain what you need from the loan and provide your figures once, rather than endlessly repeat this task as you traipse around banks and loan companies filling out application forms and comparing results.
Hedge Funding – The Billionaire Funding
Bonus way to fund a start-Up suggested by Tom Raines:
Hedge funds have become a new method for Entrepreneur’s to build capital funds for this business and other ventures. Currently there are over 40 people on the Forbes Billionaire list, who have all made their Billions from Hedge Funds. Many times this method of capital generation is unknown or just over looked. However if the Entrepreneur is wise- having a Hedge fund that is wholly owned by their company could be a smart step in funding their venture. Many Hedge funds have become worth more than some companies, so it’s not something to ignore and say it’s not possible; because it is very well possible to fund Entrepreneurial projects from hedge funds. Note – with any investment strategy there is still risk and you have to make decisions based on your own guts and feelings and thoughts.