Funding and Financing Sources for Startups

With the massive growth in technology and education, there are numerous startup ideas that make people want to jump into doing something of their own. Many think that a brilliant idea is enough for starting a new business irrespective of the funding and finances required. According to a study, more than 94% of startups fail during the first year of their establishment, and the lack of funding is the most common reason.

Good read: Mistakes That Can Kill a Startup Idea

It is very important to understand that sufficient funding is the base of business at any level.  Finance or capital is the main fuel that speeds business growth. To help startups in exploring the potential sources of funds, below are the types of funding and financing options that can help a startup raise capital.

1. Self-Funding Your Business: Also known as bootstrapping, this is an effective way, especially if you are a first-time entrepreneur. With a lack of existing potential success, it’s often difficult to attract investors. You can invest initially from your savings and get some help from family and friends. Once you have some money, you can then approach investors for additional funding. But, if your business requires money from day 1, this approach may not work well.

2. Crowdfunding: As a recent approach, you are required to put all the details of your startup on a crowdfunding platform while clearly mentioning how much funding you need. The people on this platform may read your requirements and give you the money if they like it. Further, those giving you funds will declare an online pledge with a promise to help you by giving a donation. You also need to remember that crowdfunding is a very competitive place, and only a strong idea can win there.

3. Approach Angel Investors: Angel investors are the individuals who have sufficient capital with an interest to invest in startups. Such investors work systematically by thoroughly analyzing your proposal. They might offer free mentoring to help you understand your business better. These investors tend to take more risks.

4. Get Capital from Business Incubators: Business incubators are another funding option that supports startups. Incubators work by nurturing and providing all the basic requirements like space, training, and equipment to start a business. An incubator program supports startups for 4 to 8 months with commitment and involvement from business owners.

5. Bank Loans: Banks often remain the first thought in everyone’s mind when it comes to raising funds. Banks assist in either of the 2 ways – capital loan or funding.  A capital loan will require you to pay the interest along with the loan amount. For funding, banks follow an approach to first screen your idea and then decide if it’s worth investing or not.

Apart from these, there are many other options such as Government programs, microfinance providers, accelerators, venture capital, and more.

Starting up a business requires you to look for a fundraising option that can help you the best. It’s advisable to start with a good mentor so that you learn to manage your business during its initial stages. At the same time, you should consider managing your finances judiciously under expert guidance.