Different Ways to Finance Your Startup Business

Finding startup funds can be a challenge in any economic climate. Given our current conditions, this can be extremely challenging. Here are a few ways you can find the startup funds you need. 

Attract an Angel Investor

When pitching an angel investor, you still need to follow the old rules, meaning be professional and have an exit strategy. However, the recent economic downturn has made this option a little trickier. Now you have other rules to consider. For instance, you should add some experienced professionals to your company’s team to ease any fears your investor may have. Even having an unpaid highly experienced advisor could add to your appeal. You should also make sure that you are starting your company because you are truly passionate about it, not because you are following the latest trend. Angels can quickly spot the difference and are not interested in investing in get-rich-quick schemes. 

If you’re still interested in looking for funds from an investor, you’ll need market assessments, competitive analyses, marketing strategies, and sales plans. Even startups need to demonstrate that they know the market to get anywhere with an angel because this shows that they have the discipline to succeed in the business world. After getting your money from an angel, you must keep them in the loop even if they are not interested in your business. Always make sure that you inform them of any major sales and other big breaks for your startup. 

Consider Factoring

Factoring is a way to finance your business where a company sells its receivables at a discount to get cash upfront. It is often used by companies with poor credit or those that have a lot of orders to fill before their next paycheck. However, this can be an expensive way to get funds. This is because if you sell your receivables, you will have to pay certain fees. These can add up. For that reason, this method has gotten a bad reputation if you are looking for startup funds. That being said, the economic downturn has forced companies to look for alternative financing options. For instance, some websites have allowed businesses to offer their receivables to a variety of potential buyers. This has made factoring more competitive. 

Get a Bank Loan

While lending standards have gotten much stricter, some banks are setting aside funds to get small businesses started. Therefore, applying for a loan has become a great option. 

Pledge Some of Your Future Earnings

If you are willing to take a risk on some of your future earnings, you may want to consider this unique way to raise money. In exchange for upfront startup funding, some individuals have pledged a percentage of their future lifetime earnings. In other words, you may be able to swap a small percentage of your lifetime earnings for some cash. This can give you access to hundreds of thousands of dollars. However, the legality and enforceability of these contracts have yet to be established. 

Tap Into Your 401(k)

If you are unemployed and looking to start your own business, those funds in your 401(k) can be very tempting. Thanks to certain tax provisions, you can tap into them without penalty. However, this can be a legally complex process, so you will want someone with experience to help you. Keep in mind that you are investing your retirement funds into your business, so if things don’t go as planned, you lose your business and your retirement money. 

Try Crowdfunding

A crowdfunding site can be a fun and effective way to raise money for a business. You start by setting a goal of how much money you would like to raise over a certain period. Your friends, family, and strangers then pledge money to your campaign. You can fund almost any project this way, including starting your own small business. However, you should keep in mind that this is not a source of long-term funding. Instead, it is just a way to ask for and receive a small amount for a short time. Plus, you are often expected to give incentives for those who pledge. This is because there is no long term return on investment and these donations are not tax-deductible. Still, people seem to love this idea for small projects. 

Use a Credit Card

Using a credit card to fund your business is seriously risky. If you fall behind on a payment, your credit score can get lowered drastically. If you pay just the minimum each month, you could fall into a debt hole that you can never get out of. However, when used responsibly, a credit card can be a good option for funding your startup. 

In this day and age, finding funds for a startup can be difficult. Angel investors, factoring, bank investments, pledging your future earnings, tapping into your 401(k), and crowdfunding are all ways that you can get funds for your business.