How will you finance your startup, and how long do you have to pull together the money you need? These are tough questions to answer if you don’t know where to look, so this guide will help point you in the right direction. From investors and crowdfunding to grants and government programs, it’s possible to find funding for just about any startup idea, if you know where to look! We’ll discuss all of these options and more as we take an in-depth look at how to finance your startup, from start to finish. Let’s get started!
#1 – Credit Cards
One of the most popular ways to finance a startup is by using credit cards. This can be a great option because you can often get rewards points, which can help offset some of the costs of your business. Plus, you can usually borrow a large amount of money with a credit card. However, it’s important to be aware of the interest rates associated with credit cards, as they can be quite high. You’ll also want to make sure you’re able to make your payments on time, as missing a payment can damage your credit score.
You may be wondering whether using a credit card is a good idea because of all of these drawbacks. It can be if you’re smart about how you use it. For example, consider charging only purchases that are completely necessary for your business. You should also pay off your card balance in full and on time every month, so you don’t rack up debt or get hit with late fees. If you do, interest rates will quickly offset any potential rewards points and even lead to other problems with missed payments or damaged credit scores.
#2 – Business Loans
Business loans are a great way to finance your startup. You can either get a loan from a bank or borrow money from friends and family. There are also online lenders that you can use. Just make sure that you have a solid business plan before you start borrowing money. If you go with a bank, they’ll check your credit score and then decide whether or not you’re eligible for a loan. If you need help raising money from friends and family, there are lending platforms that allow for peer-to-peer loans. These sites let investors look at your business plan and evaluate how much risk they want to take on before agreeing to lend you money.
If you decide to go with a business loan, there are a few things you should know. First, you’ll need a bank account and at least six months of expenses saved up. You’ll also need a good credit score, but how much money you borrow will be affected by your credit history as well. You’ll need collateral for larger loans and extra documentation for loans in foreign currencies. Banks typically look at three financial ratios when deciding whether or not to give someone a loan—debt-to-income ratio, total debt ratio and liquidity ratio. In addition, banks consider your track record of repaying other debts before deciding whether or not they should loan you money.
#3 – Savings
One of the smartest ways to finance your startup is through your own savings. This means that you have complete control over how you use the money and you don’t have to answer to anyone else. It can be difficult to dip into your personal savings, but it can be worth it in the long run. If you’re committed to your idea and can live on a tight budget for a few months or years, then this may be a viable option for financing your startup. You’ll need about $5-10K for minimal start-up costs like rent and marketing materials before you can turn around and start bringing in revenue.
In addition, if you plan on quitting your job with no notice to work on your business full time, consider putting away some funds so that you’ll have something to live off of until the business becomes profitable. If this sounds too risky or intimidating, then make sure you still get a little money from an alternate source as well such as friends or family or loans/investors
#4 – Kickstarters
If you have a great idea for a product or service but lack the initial funding to get your business off the ground, you may want to consider a Kickstarter campaign. Kickstarter is a crowdfunding platform that allows entrepreneurs to solicit funds from the general public in order to finance their business ventures. To be successful, your Kickstarter campaign must have a clear and concise pitch, offer attractive rewards for backers, and create a sense of urgency. You should also have a solid marketing plan in place to reach your target audience. With careful planning and execution, a Kickstarter campaign can provide the financial boost you need to get your startup up and running.
With a Kickstarter campaign, you set a financial goal and a deadline for when you need to meet that goal. You then solicit funds from backers in exchange for rewards—usually something like early access to your product or service. In turn, backers can choose how much they want to contribute. Kickstarter allows project creators with limited financial resources and projects that don’t fall into traditional categories (such as arts, crafts, dance, theatre) more exposure than most other funding platforms. The downside is that Kickstarter collects 5% of your total funds raised plus 3-5% credit card processing fees. Backers must also be located in countries where Amazon payments are supported.
#5 – External Investors
If you’re looking for money to finance your startup, one option is to seek out external investors. This can be done by pitching your business idea to individuals or firms in the hopes of securing funding. There are a few things to keep in mind when doing this: make sure you have a solid business plan, do your research on potential investors, and be prepared to give up a portion of ownership in your company. While it may be daunting to put yourself out there, remember that there’s always the potential for a big payoff if you’re successful.
If you’re planning on finding an investor, it’s important to know that you have options. Start by looking for angel investors. These are high-net-worth individuals who can give you a small amount of money in exchange for equity. They may be private people, but there are several organizations that can connect you with them—for example, AngelList is a platform that can help match startups with investors and founders. If you need more than a few thousand dollars, then instead look for venture capitalists or other types of institutional investors; they tend to have larger sums of money available and are willing to invest at earlier stages in your business’s life cycle.