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How To Finance A New Business

It is common knowledge that the lack of finance is the reason many businesses don’t see the light of day. How to finance a new business is the question everyone at the idea stage of a business ought to ask. This article covers 8 ways that will help you finance your new venture. These are tested fundraising strategies to help you raise funds for any industry startup.

Bank Loans

Bank loans are not always the smartest forms of financing a startup business. However, it has also been a widely accepted way of getting funds for your business, although getting loans from the bank today has become even more complicated.

To get bank loans, you will need a good credit score and asset(s) to be used as collateral. Since startups are deemed a risky form of investment, banks today like to be thorough when evaluating loans for startups.

Ultimately, nonetheless, they prove to be one of the best business funding sources.

Also read: Will Your Business Idea Sell? How To Research The Viability of a Business Idea

Angel Investors

This is my favorite way to raise funds for a startup. However, finding and winning over an angel investor can be a tad complicated.

One secret that I have tested to work when pitching to an angel investor is being knowledgeable about your startup and being succinct.

Angel investors are typically wealthy individuals who exchange funding for ownership equity. These people are typically looking for more ways to make money. By being as brief and direct as possible, you garner their attention, and, in time, their money.

They certainly do not have all day to listen to you. Angel investors can often be found in your own family, friends, or men’s club.

They s typically expect 20 – 25 percent of the business. The best thing about Angel investment, though, is that they can be knowledgeable about your industry. This in turn means that they are very primed to give you quality advice in scaling your business. And, since their money is in the business, they will most likely advise you to succeed.

Also Read: How To Find The Right Investors For Your Startup Business

Friends and family

As an entrepreneur looking for how to finance a new business, especially if it is your first, your friends and family are the first places to look.

Doing so comes with a lot of benefits. You are likely to get a low or no interest rates when using this method as a funding source.

Ensure to approach them the same way you would an investor. Have a concrete business plan, and tell them the risk associated with the business you are about to start.

Crowdfunding

With digital crowdfunding, you can fund your idea without paying anything upfront or, in some cases, even paying back.

For those new to crowdfunding, this method of funding can also be called donations. This is a case where ordinary individuals like you, and I contribute to funding businesses they like.

Typically, crowdfunding platforms take a certain percent of the total funds raised.

This is how to finance a new business, and also get an insight into your business idea and your target market.

Some examples of crowdfunding websites are Kickstarter, Gofundme, RocketHub, Razoo, and Crowdrise.

When choosing a crowdfunding website, ensure to read the fine prints; what they charge, and what happens when you can’t meet your funding target.

Grants

Grants are non-refundable funds provided by either a private organization or the government. This is a great way to get funds to start up your business.

However, most grants are industry-specific. If you are a business in the science or research field, then you get grants provided by SBA through the SBIR or STTR.

The secret to winning grants is staying informed on local and international grant opportunities.

Do research from time to time on the various opportunities out there. Information as we know today is power. Grants are a less walked path on how to finance a new business.

Contest

Many Fortune 500 businesses host business grant contests annually. A typical example is FedEx. This is another fine place to seek startup capital.

Keep your day job

The best way to fund any startup has always been with your own money.

For entrepreneurs pivoting from the 9-to-5 to their own business, it’s normal to want to leave your day job and focus on building your business. This can be hurtful to you in many ways than one. This is one of the mistakes many aspiring entrepreneurs make before asking how to finance a new business.

Keeping your day job will serve as a funding source for your startup. Always ensure your business is doing okay before leaving that day job.

Side hustle

When I had the idea for my first business, I was still a student who earned no penny on my own. I had no savings nor a job, yet I wanted to start a business.

Many of you out there today are currently like I was. All you have is a business idea you are very passionate about. How did I pull it off?

Coincidentally, I learned a skill and started what has become one of my major sources of income today, freelance writing.

That’s right. If all you have is a business idea, the best way you can raise funds for yourself is by starting a freelance side hustle.

For this, all you need is a skill that people would pay for. If you have none, picking up a new skill today is pretty easy.

Once you have that skill, you can find freelance gigs through cold marketing or freelance websites i.e, Upwork and Fiverr.

The downside to this is, however, is that you might earn enough money with that skill that it becomes your major income source. I tell you from experience, once you step into offering freelance services, you may be a freelancer for a long time.