There are a few options that you can consider while establishing your startup funding. But are you aware of possibilities? Also, do you know where to get funds to startup your business?
If you’re thinking about creating your startup soon, then you have probably thought about ways to fund your business.
Getting money to support your project is not always easy. In fact, most of the time, the money comes from you, your friends or family.
However, there are several other ways to get your startup funding moving. Do you know where to go to get the funds you need?
There are two main ways to achieve your funding goals, you can raise it or getting in debt.
Andrew Jeffers presents four startup funding ways to get your business running.
1. Borrowing and self-financing
The most common way to obtain money for your business is by investing your own savings or borrowing from relatives and friends.
That has its shares of risks, it can compromise your social relations. It can also make you lose a lifetime of savings in the worst case scenario.
That’s why creating a proper business plan is crucial before launching your business. You should have some sort of assurance that your business has what it takes to succeed.
If you don’t, you’re just putting your relatives money and your own money at risk. They will most likely lose everything they’ve invested and you are responsible for that.
Moreover, while borrowing or taking money from loved ones, you should consider putting some documents together. After all, these are the people helping from the start.
Another great way to raise funds is through crowdfunding. You can present your business and let people put their money on your project.
Currently, it is legal to do this type of startup funding in Australia. You just need to proceed according to the legislation and provide all the necessary documents.
It is easier to launch a crowdfunding campaign if you’re a public company and it can actually serve you very well if you follow the legislation. So, make sure to check it out.
Crowdfunding can be done in many ways. So, don’t forget to consider what sort of shareholders you want to include in your business.
3. Bank loans
The easier and most practical way to fund your startup is probably through a bank loan. It is true you will get in debt for a while but you get to keep your business. There will be no shareholders to share your profit.
Therefore, if you have a solid business plan and you manage to make things work, then you can pay out your loan and get the profits from your business.
To get a bank loan, you should analyse and create a long-term business plan. You need to ensure that your business will have enough cash flow until you can go past the break-even point.
Then, you choose a bank and you request a loan. Once you’ve taken care of all the bureaucracy and paperwork, you’ll have your money.
4. Debt funding
If getting in debt is not really your thing, you can always go for debt funding. You can simply raise money from investors and in return, you give them a share of the profits you make.
This startup funding method is particularly difficult to accomplish unless you have some physical assets to back it up.
On the other hand, you don’t really need to pay back for the money your investors have given you. If things go bad and you end up losing everything, they just lose their funds.
However, if you succeed you’ll have to share your profits with all the investors, who become shareholders. Keep in mind the interest rates are usually much higher than bank loans.
Bank loans vs. debt funding
When you really need large amounts of money, you generally go for one of these two startup funding options. But what is the difference between them?
Andrew Jeffers did a quick comparison and concluded that bank loans are a lot cheaper than borrowing money from shareholders. Also, it’s easier to get bank funds sometimes.
So, let’s imagine that you have $1 and you put it in the bank, they will pay you about 0-1% interest. On the other hand, if I put that $1 into my business, I would hope to get a 15% return. If I go to the bank I could borrow money for a business line for about 7-8%.
Now, think about this, you borrow money from the bank with 7% interest, you get money from investors and the interest raises to 15%.
I know what you must be thinking, “I don’t have to repay my shareholders”. No, you don’t have to repay your shareholders. They’re taking a risk on you. If you lose their money, they’ve lost their money. If you lose the bank’s money, they’re coming after you.
Which startup funding option is the most suitable for your startup?
That’s a question that needs a personalized analysis. Each business is different and each one might require different funding solutions.
But there’s plenty you can do to find out what’s the most suitable startup funding option for you. First, you should start by thinking about the implications of each one of the funding methods here presented.
Do you think you can generate enough profit to pay back your loan at long-term? Are you ready to share profit with investors? What about the emotional attachment with your friends and family if you end up losing their money?
Get moving and understand which startup funding method is the most reliable and suitable for you and your business. You can engage in any of them as long as you back up yourself.
I can help you decide which start funding options are the most suitable for your company. Don’t compromise the future of your business and get professional advice right away.