In order to get funding for a startup, most of the entrepreneurs try to engage outside sources. Nevertheless, there are few lucky entrepreneurs who don’t need outside funding, as they are capable of starting their business on their own.
Although there is a wide range of funding sources, you can consider three categories for your startup business plan including Bootstrapping, Equity, and Debt. This is how most of the entrepreneurs get funding for a startup. For more details, just continue reading!
Starting a venture with a good amount of investor capital is an ideal situation for an entrepreneur. However, in past, this idea wasn’t popular among the majority of the startup founders. On the contrary, they used their own capital while funding for a startup and bootstrapping was the major source.
Bootstrapping usually includes using credit cards, personal savings, borrowing from friends and family or promising stock for sweat equity. Since borrowing from family or friends can be a daunting task, most of the startup founders prefer using crowdfunding.
The funds generated through bootstrapping usually cover most of the business essentials like basic office supplies, website domain or incorporating. Whereas, other major costs including promotional and marketing dollars are alleviated by the sweat equity of an entrepreneur.
Equity relates to the capital, which is received by entrepreneurs in exchange for stock in their business or company. Although equity is considered as the rarest option than debt or bootstrapping, entrepreneurs are usually attracted due to equity deals. This is so as these deals are not based on personal credit or collateral basis. Moreover, startup founders are more interested in this particular option as they can relieve themselves from the stress of paying back the debt.
Moreover, equity investments serve as the most viable option for business with high risk and require a longer period for ROI (return on investment). Hence, the companies requiring some extra time before they actually start earning a significant income, do prefer equity. This allows them to grow their business without utilizing their income for making debt payments. In fact, getting the experience in real time and learning the ability to take benefit from investor’s network may prove beneficial for a startup. However, as an entrepreneur, you must try to use a persuasive elevator pitch to engage an equity investment. Taking help from a few Elevator pitches templates can be helpful for you in most of the cases.
However, there is a downside to equity, which relates to the giving up of company’s ownership. By giving your company, you actually enter into a lifetime partnership with that investor. Once, you have shared your company through equity, it is unlikely that you may get back your company. This surely sounds challenging for most of the startup founders. Apart from the potential threats, entrepreneurs still prefer to engage with equity investors.
Due to the legislative developments in terms of the JOBS Act, the SEC lifted the ban on general solicitation. This was mainly related to the equity investment through crowdfunding. It opened new opportunities for entrepreneurs to get funding for a startup by reaching out to the investors.
Debt is a way to get funding for a startup, but you have to pay back the capital within a particular period. Normally, it is relatively easy to get debt for a startup than arranging funds through equity investors. This is so as the lenders offer debt for almost every industry; hence, most startup founders consider this option when making a startup business plan.
Startup founders or entrepreneurs can benefit themselves through the Small Business Association (SBA), a loan program backed the U.S. Government. Though these are government supported, the financial institution may still require substantial planning and resources to support writing the loan.
You need to show patience when trying to get funding for a startup. It is considered as the most critical and hard to tackle element while starting a business. Therefore, understanding the various available options and deliberately evaluating them is the key to your success.
As a whole, entrepreneurs like to avail the opportunity when the option of equity investment is available. Nevertheless, not every startup founder can avail this facility. Hence, try to evaluate your chances of getting this type of funding prior to putting your time and effort into it. By doing so, you can save your precious time and utilize it for attracting viable investment for your startup.
In order to get funding for a startup, the entrepreneurs can seek one of the most viable options to meet their needs. Moreover, it would be prudent to analyze and consider all types of funding facilities while creating a startup business plan. With the growth of a company, the entrepreneur will be in a position to arrange other forms of capital. This means that the startup founder can start with personal savings or a simple credit card debt and later on utilize complicated sources such as commercial loans and .