Funding a business is not as hard as you think, but it does depend on the business. A tech startup, where the owner is a developer or can bring the product to fruition, can begin will little startup capital.
But if you need to make a prototype and mass-produce products, the expenses will quickly rise.
When a business needs to fund growth, the entrepreneur has a variety of ways that they can fund operations. A few of the many ways to fund the business are:
1. Self-funding the Operation
When no one else will fund a business idea, owners are funding it themselves. These entrepreneurs are willing to take on all of the risks, so they’ll:
- Take a second mortgage out on their home
- Max out their credit cards
- Sell assets
- Dip into savings
But self-funding through these measures is a risk. Others are taking on part-time jobs or moving in with roommates to save extra money to fund their operation.
2. Friends and Family
Friends and family are still a major method of financing. A lot of the world’s largest corporations first started with the help of friends and family. These friends believed in their loved ones’ ideas.
Jeff Bezos’ parents invested $250,000 into their son’s company Amazon.
His parents are now billionaires, and Bezos is the richest man in the world. But it’s important that you don’t take money without explaining the risk of failure. The investors may see returns on their investment or these friends and family may suffer losses which you’ll hear about forever.
3. Traditional Funding Measures
Traditional funding, through a bank or lender, is still very popular. You’ll find that corporate finance is an option, especially if your business has already started making money. When your business has turned a profit, you can get your books ready and start seeking outside investment.
If your business has potential to grow and a solid business plan, lenders may allow you to borrow money to get your operation off of the ground.
This is backed up by the small business loan experts at Max Funding, who say that “When lending money, financial institutions want to ensure that they will get their money back. If your business plan shows great potential for growth, then these companies will have faith that they will get their money back and trust you to borrow more cash. This is why it is important to work hard on solidifying your business plan before applying for any traditional funding.”
4. Crowdfunding a Business
Crowdfunding is very popular, especially among startups. You can pitch your idea to investors, and you’ll find that funding often comes from numerous investors at once. These web-based projects will have the potential to reach thousands of investors, and the return may be rewards-based rather than equity in the business.
You have the idea for a business, but someone else has the money to fund the business. Partners can be silent, meaning that they don’t help in the business’s operations – they only seek a portion of the profits.
Partnering with someone else comes with its own challenges, but if you find the right partner, they can help with the funding and growth of the business.
Angel investors are another option, but this group will want a business that is highly unique with a high chance of success. These groups fund new ventures, and they’re different from venture funds which seek to make massive investments for a significant share of equity in the company.