When you finally think of the perfect business idea, you may be eager to get it off the ground. But all too often, funding—or lack thereof—can halt your dreams before you realize them.
Figuring out how to finance your business is never easy. As the funding landscape grows more complex, it may be harder to see which options are best for your business.
By learning more about your options, it may be easier to make an informed decision.
Here’s what you need to know:
How to get funding for my business
As an entrepreneur, how to finance your business is always a pressing concern.
It may be tempting to immediately apply for funding, but it’s worthwhile to do your research first.
Only half of small businesses survive beyond five years, so you need to choose wisely. These are some of the most popular options to consider—along with the pros and cons of each one.
Bootstrapping is when you start a business from scratch with no outside funding. You may do it with a personal stash of savings. Or, you may be expecting a flood of income early on.
Depending on how much cash you start with, you may kick things off with limited expenses.
- You have 100% control over your business and future decisions.
- You may not have to devote time to raising money from outside investors.
- It may take years to save enough money on your own.
- You still may not have enough resources to grow the business.
- With limited capital, you may have to compromise on your product or business choices.
There’s nothing like seeing a crowdfunding campaign go viral on social media.
For many entrepreneurs, crowdfunding is a way to test the waters.
With a few clicks, you can create a campaign through an existing platform, and share it online.
If people like it, they can donate small amounts of money—often in exchange for special access or rewards. Kickstarter may be the best-known crowdfunding platform.
- If your campaign is successful, you may raise enough money to finance your business.
- There is the potential to reach a lot of people.
- The money is like a grant—you don’t have to pay it back.
- It may be difficult to reach your crowdfunding goals.
- Many platforms have a threshold—you must meet your goal to receive any funds.
- If the campaign fails, it may hurt your chances of future funding opportunities.
If you have a network of high net worth colleagues, you may consider working with them as angel investors.
Often, angel investors offer a one-time investment to get your business running. Or, they may support you through the early stages of your business. In exchange, angel investors own a small piece of your business.
Either way, angel investors are taking a big risk.
- You may raise money quickly.
- You may have mentorship opportunities with investors who want you to succeed.
- You give up a piece of your business and future earnings.
- You lose some control and decision-making power in your business.
If you get funding from a venture capitalist, they are also looking to own a piece of your business.
The difference is, it may be an individual or firm using a pool of other people’s money. They offer more money than angel investors but prefer to stick with established businesses.
They are looking for higher growth potential and expect a higher return on their investment.
- You can raise a lot more money with venture capitalists.
- Like angel investors, you may receive guidance from experienced entrepreneurs.
- You will give up a larger piece of your business.
- Venture capitalists may have greater demands than angel investors, leaving you with less control over your business.
The Best Way to Finance your Business
In the early days, “how to get funding for my business” may be one of your top Google search queries—and that’s a good thing.
By laying the groundwork now, you can learn about the best options for how to finance your business. But it’s critical to understand how much you can afford and what happens if you can’t pay off your debt.
Spending some extra time now may help you prevent headaches, and added costs, down the road.