Every year, thousands of ambitious entrepreneurs start their own businesses. Most of these companies are “sole entrepreneur” businesses, meaning that the owner is the only person working there. These entrepreneurs feel positive and full of hope.
However, the way to success is a long one. 80% of startups make it to the second year, 70% to the second, and about 50% to the fifth year. In other words, every second business has a chance to mature into a stable small- to mid-size business. While even some of them will become things of legends – like Apple or Google – companies created in garages that ultimately ascended to the biggest ranks of the business world.
Your path to becoming a legend starts with a way to finance your company’s birth. The funding you find for it will be its “mother” – nurturing your business to its success. There are many ways to fund your business, and in this post, we present to you some of the best ones.
Self-financing your startup is relatively easy. If you have personal assets, like stocks, real estate or bonds, and are willing to sell them, you can raise cash to fund your startup. Selling assets for money is a traditional way to raise investments for your business. However, take care as there could be some tax implications linked to selling particular assets, like stocks or real estate. Take this in the account before proceeding with everything; otherwise, you might face unexpected capital gains taxes from the IRS.
You can also tap into your personal savings to finance a small business. This money can come from your family inheritance or bank account, and using it is not only popular but also shows that you’re committed to your business to other potential investors – if you need help to win additional funding from third parties.
Explore alternative funding
One type of alternative funding is the increasingly popular crowd-funding sites, like Kickstarter or IndieGoGo, that provide you with a platform to raise money from individuals, and small investors across the Internet. You get to set up a campaign and decide about a target amount of cash you want to raise, as well as create perks for donors that pledge a particular amount of money. Next, you raise cash for the campaign over a period of time.
If you’re looking for small amounts of money (from $5,000 to $50,000), you can take online personal loans. They are meant for low-income entrepreneurs and provide them with unsecured personal loans – those that don’t require a deposit or collateral. They’re also short-term, as you can repay them in two to five years’ time.
Family and friends
If personal loans are not an option, you can always turn to the people you know best. Friends and family members are easier to persuade than anonymous bank representatives. They will also more likely look past your account balance and credit score when deciding whether you are worth the risk. Moreover, they are less likely to demand harsher repayment terms or higher interest rates.
According to research, personal investment from the owner’s family plays a significat role in startup funding. Just remember that borrowing from family and friends can complicate your relationships (and dinners). In the end, you won’t have to sit on Thanksgiving dinner with your credit card company. Only try this option if you’re pretty sure you’ll be able to return the money.
Strategic partner financing is based on the premise that another player in your, or similar, industry funds your growth in exchange for special access to your staff, product, distribution rights, ultimate sale or some combination thereof. For instance, last year, Marlboro owner Altria invested $1.8 in cannabis company Cronos, after Canada legalized marijuana.
Strategic funding acts like venture capital in that it is often an equity sale (not a debt), though sometimes it can be royalty-based – where the partner gets a piece of every sale. Partner financing is also a great alternative since the company you partner with will often be a large one, and from a similar industry at that. The bigger company usually has relevant consumers, salespeople, and marketing strategy to boost your firm.
Funding your business off the ground isn’t easy, but it is possible. Once you’ve saved enough or found other people to co-invest with you, you can start your dream job. Good luck!