Funding Sources for Start-ups

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Finding the capital to finance your start-up can be a nerve-wracking and frustrating affair.  Have you considered all the possible venues to explore that will take your business to the next level?

Crowdfunding

In short, crowdfunding is a type of funding practice that secures funding from a variety of small donations from a large amount of people, typically via the internet. By offering incentives in exchange for tiered donations (product presales, customized products at reduced cost, personalized thank-you’s), crowdfunded ventures typically encompass a wider social swath than trying to woo individual investors or convince lending sources.  Of all the funding sources listed in this article, crowdfunding is by far the easiest.  If you’re looking for an in-depth analysis of crowdfunding sources and popular platforms, be sure to take a look at our article “A guide to crowdfunding” that explains whether crowdfunding is right for your business model.

Bootstrapping

Bootstrapping is another method of funding that uses little resources, typically your own money or your friends and family’s resources, to fund a venture.  The term bootstrapping comes from the phrase “pulling yourself up by the bootstraps,” a nod to the self-made man do-it-yourself ethos.  Digging into your own savings keeps you from accruing debt and disappointing those near and dear to you, but gathering large sums of cash from family is inaccessible for all but the wealthiest of families.  Be sure to look into selling assets, such as unused vehicles, to give the injection of cash your business needs to take it to the next level.

Barter

If you have a specialized talent, or you have a spouse/family member that does, you can trade those skills for cash, especially if what you’re bartering is below market value.  One such example I’ve seen in action is the wife of a dentist offering her husband’s services at cost in exchange for website design and office work.  Even if no funds are being exchanged, money is saved and value is added to your start-up, which is a boon to any nascent business.

Angel Investors

If you’re looking for an injection of cash between $25,000 to $250,000, angel investors are the way to go.  Of course, you’ll have to network with local angel groups in your area (www.angelsoft.net) and convince angel investors knowledgeable about your particular industry to fund your start-up.  For more information, be sure to check out our article on what to do before approaching angel investors.

Loans

Probably the most traditional of all forms of finding funding for your business, securing a loan from a bank is the most commonplace method.  By securing a bank loan after a screening process that can take months, a bank offers you a loan with an interest rate.  Depending on your bank and agreements, monthly payments with interest begin to be charged at an agreed-upon timeline.  It is absolutely necessary to have a high credit score and a solid business plan to persuade bankers to approve you plan.

Another option is taking out a home equity loan to finance your start-up.  These types of loans tend to offer flexible interest loans at rates lower than traditional commercial rates.  Of course, you risk having your house slip into foreclosure if your start-up fails, increasing the risk of not only a business failure, but also losing your home.

An alternative to the traditional brick-and-mortar bank loan scheme is to try online lending.  Websites like Kabbage and OnDeck comparatively quicker prescreening and application processes—an hour online of form filling, followed by a decision within days.  Former U.S. Treasury Secretary Larry Summers recently endorsed online lending as the wave of the future, predicting nearly 70% of small businesses to have some involvement with this new form of loans.

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