Although you may have big aspirations, it can be difficult to obtain startup funding, otherwise known as startup capital.
Funding your small business startup may take patience, effort, and a lot of elbow grease, but it is possible to get the capital you need to get your show on the road, so to speak.
Take a closer look at some of the ways you can fund your small business:
- Self Funding
- Obtaining Investors
- Getting a Small Business Loan or a Title Loan
You may self-fund your small business startup without outside interference if you have enough money in a high-yield savings account.
One of the main benefits of choosing to self-fund is that you do not have to rely on investors; in turn, investors will be unable to have a vested interest in your business plans for the future.
The decisions you may make as a business owner can be your own, and without a team of investors, you can have a clear head that is not led by the interests of outside parties.
On the other hand, relying on investors to fund your business takes the pressure off yourself, so you are not obligated to shoulder the financial burden alone.
Funding a small business startup is no small feat, and depending on the side of your operation, you could realistically spend around $30,000 per year on operating costs, according to a recent report by the Kauffman Foundation. Additionally, as you grow, your costs will grow with you!
Two different types of investors can be an asset to you when you are starting your business with the potential for high amounts of financial growth:
- Angel Investors
- Venture Capital Firms
While relying on investors means that you do not have to apply for a loan, you are essentially giving up partial ownership of your company, and they may prefer to have a say in the decisions that you make as a business owner.
Although that may not always be the case, it is a real possibility that you must consider before you seek out investors.
Do you play well with others? Can you trust these investors to make financially savvy decisions that will improve the overall health of your business?
All of these questions must be asked prior to you asking an investor to fund your startup. You do not want to look for investors who just focus on profit; they need to consider the entire picture.
Lastly, consider applying for small business loans or title loans. Depending on the amount of funding you need to get the ball rolling, either option may be a suitable choice.
If your credit profile is by no means stellar, a secured loan such as a title loan could be a more advantageous option.
However, if you have a strong credit history and an established credit history for your business, then a small business loan could be the most appropriate route to take.
Can I Rely On Friends And Family To Start My Small Business?
Yes, you can certainly rely on close friends and family to get your business on the map and hopefully start turning a profit.
However, before you have that difficult conversation, keep in mind that once a loan enters a relationship, it can change everything.
In the event that you are unable to pay them back and your business is not profitable, they may harbor some resentment towards you, which could leave the relationship unsalvageable.
Additionally, even if you are successful with your business, if they financed your small business start-up, they might expect to be more involved with your company and ask for a share of the profits besides what they lent you – just like investors!
Since money can build or break relationships, consider other avenues before you run to your family and friends. There are many other options to consider before you decide to head down that road.
How Much Do You Need To Fund A Start-Up Company?
There is no one-size-fits-all approach to funding a business, and there is no singular number that can guarantee the success of your business.
In all honesty, the amount of money you need to get your business off the ground running will depend on the type of business you are hoping to start, along with the prospective operating costs.
For example, it is much more challenging and expensive to finance a new restaurant than a clothing store simply because the operating costs vary so significantly.
Therefore, it is important to do market research and carefully consider the potential costs associated with launching your business before committing to anything.
Additionally, it is important to plan for any unexpected expenses that may arise because life is quite unpredictable!
As a future entrepreneur and a small business owner, it is always a good idea to plan for the worst but expect the best.
What Should I Consider Before I Seek Funding for My Small Business Startup?
Before you run off to the nearest investors, ensure that you have a solid business plan. Investors typically prefer to see entrepreneurs who are prepared, organized, and ready for action. As they want to make sure you don’t join the 21.9% of businesses which fail in the first year.
Additionally, whether you are relying on close friends or family for help, or choosing to work with investors, you must have a solid understanding of how much you’re going to ask for.
Create a ballpark number based on your planned expenses and operating costs.
Without this number, you are basically going into your future conversations blind, and you will look widely unprepared.
If you have ever watched Shark Tank, you know how easy it is to distinguish a prepared business plan from an unprepared one.
Lastly, consider the exact type of funding you are going to pursue. If you do not have the option to fund your business yourself and cannot rely on a traditional loan option, you may want to take a closer look at all of your alternative options and go down that road.