29 jan Reliable ways to fund your start-up
During your entrepreneurial journey, chances are that your small business will run into financial problems or cash flow issues at some point. In fact, cash flow issues and undercapitalization are the most common reasons why start-ups fail. However, we want to stress that you shouldn’t let money stop you from pursuing your dream of making your idea reality. Below you will find five common ways to get the cash flow required to continue operating your business venture:
Using your personal money is one of the easiest and most common ways to finance your start-up. However, one big downside to this method is that it’s very risky. This method is preferred by investors, which you will potentially meet in a later stage, because it demonstrates your commitment to the company. Depending on your personal situation, you can tap your personal savings, sell personal assets or take on a part-time job in order to fund a part of your venture.
Friends and family
If, like most students, you do not have enough money laying around to kickstart your venture, another possibility could be funding through friends and family. This often brings you favorable terms and flexible repayment. Receiving funding from friends and family is often a relatively safe bet, compared to bank loans, angel investors and venture capitalists. We believe that a “friends and family round” is possibly the best place to start. However, make sure to advise them of the risks associated with the investment as you don’t want to ruin personal relationships.
Small business loans
Small business loans provide reasonable terms and conditions, while this type of funding does not require you to give away a piece of your business. However, applying for these loans requires an extensive amount of paperwork and process. In addition, you should be careful with interest rates, as small business loans sometimes have relatively high rates. In conclusion, you should do proper research prior to applying to a small business loan.
An angel investor is a person who provides capital to start-ups. This is one of the most popular ways to receive start-up funding, as it allows you to keep control and ownership over your company and earn mentorship when it is needed. Angel investors are usually willing to take risks, however they may set the bar higher, as these investors expect a high rate of return. We recommend that you do your due diligence when you search for investors. In the end, you will know when you’ve found the right person.
Venture capitalists (VCs)
Venture capitalists work similarly to angel investors. They are essentially professional groups/companies that look specifically for start-ups to fund. Usually, these companies have more money to offer than angel investors. In addition, angel investors and venture capitalists invest in businesses at different stages. Venture capitalists tend to invest in businesses that are already established to reduce their risk of losing investments.
Regardless of which path your start-up takes, capitalization is key to keep your venture running. Finding a sustainable funding solution allows you to maintain operations and focus on growth, innovation and profitability.