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According to the Bureau of Labor Statistics, 20% of businesses fail in their first year of existence and almost half of all startups (45%) will have failed within the first five years. Lack of funding has been found to be one of the reasons they fail. Money is the bloodline of a business venture. Every time a person decides to start a business, the first thing that comes to mind is how are they going to fund it? The type and nature of a business determines when you will need funding. Getting funds for your business can be especially challenging if you do not have business credit. Here are some of the ways in which you can raise money to fund your startup when you do not qualify for business credit.
This entails using your own money to fund your business. This money could be your savings or money that you have raised by selling some of your property. One of the major advantages of using your money is that you will be tied to the business. As time goes by, investors will be more willing to partner with you when they realize that you invested your money into the business. This is an easy way of raising money due to the few compliance or formalities involved and it will also cost you less. It is ideal for businesses that do not require a lot of capital upfront.
Family and Friends
Another sure way of raising capital when you do not qualify for loans is through borrowing from family or friends. This is a great option because most friends and relatives will be willing to lend you money with a low interest rate. When deciding which friends or relatives to borrow from, you should select those who know the risks involved, understand your plan and believe that you will succeed. On the other hand, you should show due diligence and passion by ensuring that you have direction and a solid business plan. Ensure that you agree on whether the funding will be equity in your company or a loan. If it is a loan, come up with a payment plan, document everything and manage the loan.
Start a Crowd-Funding Campaign
Many people have successfully raised money to run their businesses using this method. All you need to raise money through crowd-funding is a good pitch and product. Crowd funding presents you with a chance to make connections with people who think like you and have shared interests who you would not have met any other way. It also helps you determine whether people will be interested in the product and know what people are relating to and what they are not. This will help you make your pitch and product better. Moreover, crowd funding can help you get funds for running your business.
Some of the sites where you can visit and do crowd funding include Indiegogo, GoFundMe, Onevest, DonorBox, DreamFunded, and Kickstarter. If you want to succeed and raise money through this method, ensure that you write a good story because people on these sites want to know how you were able to transform your dream into reality. Additionally, you should make a video that demonstrates the importance of your product, the problem it solves and why you need financial support. Owning a good website and doing PR outreach is also a good thing.
Business Accelerators and Incubators
This is a great funding option for a new business venture. These programs are available in most big cities and they help many startup businesses all the time. Incubators assist the business to grow in the initial stages whereas accelerators assist the business to achieve major milestones. These programs usually operate for between 4 and 8 months and need the business owners to commit their time. The platform will also help you connect with investors, mentor as well as other startups. Some of the popular incubators or accelerators in the US include Y Combinator, AngelPad, DreamIt Ventures, TechStars, TechNexus, 500Startups, Kicklabs and Excelerate Labs.
Acquire Venture Capital and Angel Investments for Your Startup
Venture capitals are funds that are managed professionally and they invest in businesses that have huge prospects. They normally invest in a company against equity and leave when there is an acquisition or IPO. They offer mentorship and expertise and help you evaluate the direction of the business. Venture capitalists also assess the scalability and sustainability of a business. They are ideal for small businesses that are past the startup stage and have already started generating profits.
Venture capitalists are people who have excess money and are interested in investing in new startups. They also operate in groups and evaluate proposals together before putting their money into the business. Additionally, they can give you advice and mentor you besides giving you capital. Investors expect about 30% equity and they usually invest in the initial growth stages of a business. Some of the big companies that have benefited from this method include Alibaba, Yahoo, and Google. The only downside of getting angel investments is they invest fewer funds than venture capitals.
Starting a business is a great way of getting financial freedom; however the lack of enough capital can dampen your spirit or prevent you from turning your great idea into a lucrative business. Fortunately, you can use any of the above methods of raising funds and get your business off the ground. Find what works for you and go for it.
Have any more tips for raising money for your startup? Let us know down in the comments.
This article originally published on GREY Journal.