Launching a startup is one thing, but finding funding enough to keep it going through those difficult growing pains can be quite another. If you start a business without enough cash for at least the first year, you could be setting yourself up for failure.
Fortunately, there are several funding options for you to consider.
This is the hottest way for startups to get a quick infusion of cash. With crowdfunding, you set up a campaign through a site like Kickstarter and open it up to investors. Now, these aren’t fancy-pants $2 million investors. They’re people just like you and me who want to support a business they believe in. They might donate as little as $5, so you’ve really got to build support around your campaign to keep the money flowing in.
As a token of appreciation, most sites require you to offer some sort of compensation or thank you, like a t-shirt with your logo, or maybe an early release version of your product. But you don’t have to pay the money you raise back, which is a blessing. Nor do your investors actually have a say in how you run your business.
Sidenote: Most crowdfunding sites have a policy that if you don’t raise the entire amount you set out to raise, you get no money at all. On the other hand, if you exceed your goal, you get to keep it all, so err on the conservative side with your goal to ensure you get money.
The opposite of crowdfunding is venture capital. This involves working with a VC firm that invests in startups in your industry. They’ll give you a sizeable sum in exchange for equity in your business. Yes, that means they have a say in how you run it. That’s a deterrent for many, but venture capital is still a viable option because it gives you a lot of cash to grow your business with.
Sidenote: Creating an S Corp is the first step before approaching venture capital investors. They want your business to be incorporated so they don’t have any risk.
If you’re fortunate, you have savings you can put toward growing your startup. Be mindful of replacing that money, though, once your business becomes profitable. It doesn’t do you any good to take all your retirement money for this business endeavor, only to leave yourself empty-handed come retirement time.
Sidenote: Many startup founders take out another mortgage on their home to fund their businesses. Be careful here; you don’t want to end up with a large mortgage payment that you can’t afford for 30 years.
Small Business Loan
If you have an established business credit history, or an outstanding personal credit, consider a small business loan. Once repayment starts, you’ll need to start paying back that loan from your business profits.
Sidenote: Small business loans aren’t all that easy to get these days. Only about 30% of applications get approved, so make sure your finances line up before applying.