Which Funding Option Should You Choose?
Having a billion-dollar idea for a new company or startup is great, but do you have a billion dollars to start it?
You will likely need a website, a technical team, a workspace, and money for utilities while you embark on this venture. All these requirements need to be financed.
Whether it’s a pop-up shop, an app, or a clothing line, most entrepreneurs depend on funding to get off the ground initially. Most opportunists are likely to dip into their pockets to keep their startup alive, but what do you do if your wallet is empty? Fortunately, we live in an age where there are many funding options and resources to help keep your startup afloat.
There are three main types of startup funding available, each with its own benefits and drawbacks. No matter what your idea is, one of these options is likely to fit your business’s cash needs.
1. Bootstrapping
Funding your startup doesn’t have to mean using your own money. There are alternative ways to jumpstart your business.
Many entrepreneurs use bootstrapping, financing their company by scraping together funds in unconventional ways. Using existing resources or earned revenue instead of borrowing is a great approach, but being creative and resourceful can be profitable too. Here are some popular ways of bootstrapping your business.
– Renting out your home: Renting out your apartment on Airbnb can provide supplementary income and capital for your business.
– Crowdfunding: Propose your idea online, and people can pledge support for a few dollars in return for a perk or reward. This can boost your growth after your product is launched.
The pros of bootstrapping: It means you won’t have extensive loans and monthly payments that bog you down.
The cons: If you’re looking to scale your business quickly, it can be advantageous to bring in outside sources of funding.
2. Borrowing
Many entrepreneurs treat their startup as if it were their own child and would do whatever it takes for its success. Borrowing funds is a great way to finance your business idea with fewer restrictions.
Borrowing from friends and family can be a good step before seeking external funding. Prepare a business plan and explain your intentions. If your idea is attractive enough, they may be willing to put some money into your business.
The pros of borrowing: You’re not dealing with a strictly regulated financial body, so they’ll be more flexible with the repayment arrangements.
The cons: Accepting this type of loan can strain your relationship with that person if you can’t repay the money as planned.
3. Loans, Angel Investment, and Venture Capital
If borrowing from family or friends is not your preferred option, you can apply for a bank loan or seek investors in the form of angel investment or venture capital funding.
Bank loans are available if you can show that your business is gaining traction and making money.
The pros of bank loans: They allow you to fund your business without giving away any equity.
The cons: There can be protocols and delays in the process.
For seeking investors, angel investors are established business professionals with high net worths, while venture capitalists offer larger amounts of money but require a seamless business plan.
The pros of outside investors: They provide funding and valuable industry experience.
The cons: This type of funding is costly, and investors take equity in return.
You can combine these funding options depending on your situation. Do your research and find the best way to fund your business while keeping as much equity as possible.
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I’m Andrew Brooks, a seasoned finance consultant from the USA and the mind behind phonenumber247.com.
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