Starting a business requires money, known as capital, and for many entrepreneurs, this is a major hurdle that needs to be crossed. So, now you have your business plan in place, and you are confident that the business will turn out successful, how do you raise the required fund? Depending on the nature of the business and the size of funds you need, it may be easy or somewhat difficult to raise the capital you need. However, knowing the options available to you by law will take a chip off the hurdle. In this post, we’ll look at different options that you can explore to fund your business, depending on the laws of your state.
How Much Funds Do You Need?
The first step to take in funding your business is to first determine how much funding you need. Businesses have different financial needs, and there is no single financial solution that will work for every business. You must first determine your needs based on your business vision and personal financial state. When you know how much fund you need for your startup business, you can start to consider the options to explore to get the money you need.
Options of Funding Your Business
Let’s now discuss three important financial solutions that entrepreneurs can explore to fund their businesses. These are self-funding, Loans, and Investors. Let’s look at this one after the other.
- Self-Funding
When it comes to funding a business, the first place to look is inward. Self-funding has to do with leveraging your financial resources to build your business. Self-funding is also called bootstrapping, and it’s not just about using your fund to start the business. Yes, it may require that you pull out your savings to fund the business. Beyond this, it also involves asking for capital from friends and family. Self-funding has a lot of advantages. For one, you maintain total control over your business, and you don’t have to share your profits (and your loss, don’t forget that) with anyone. The downside to self-funding is the level of risk that you are taking. You should minimize your risk to avoid getting into trouble. For instance, if you use your retirement account, you may have to deal with penalties or expensive fees, depending on your age. You should check with your financial advisor or retirement plan administrator before you take this step.
- Investors Funding
You can also get venture capital to start a business from investors. Investors are individuals who have the capital you need and are willing to offer it to you in exchange for part ownership and active involvement in your business. With venture capital, you can grow a business fast by taking higher risks for potentially higher returns on investment. To get venture capital, the first step is to find an investor. Ensure you research the investor to know if they are reputable and possess the experience required to play an active role in a startup company like yours. When you have found the right investor, you have to share your business plan with them. Don’t forget to highlight the terms of agreement and conditions with the investor before you start. When everything has been done correctly, you can receive the venture capital and start your business.
- Crowdfunding
This is another effective way to raise capital for your business. Crowdfunding involves raising funds from a large number of individuals for your business. These people are called crowdfunders. They are not investors and neither will they share in your profit. The funds they give to you are gifts and a part of their contribution to your business.
Conclusion
There are three effective and legal ways to raise funds for your business. If all of these fail, you may consider taking a loan. You have to be careful when taking a loan for a startup. If you are using this option to raise funds, you must have your business plan, financial projection, and expense sheet ready for review by the bank. Make sure your business plan and forecast are profitable before you take out a loan for your business.
