5 Realistic Ways To Fund Your Startup

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Have the perfect idea for your new startup but don't have much money in your pocket? Here are 5 ideas to get your hands on funds for your startup.

Thinking about taking your career to the next level?

An increasing number of Millennials are deciding to take their careers into their own hands.

But if you’ve got a small business idea that could be a money generator, you still need to figure out how to turn it into a profitable business venture.

Regardless of whether your small business involves working in technology, gaming, catering, retail or construction, you might be tempted to draw upon your own savings or borrow funds from family and friends — in order to get started and eventually grow your business.

However, this carries a lot of personal risks and could create problems later on in your development.

On the other hand, you could raise capital for each stage of your business’ development by exploring what options you have to fund a startup.

How to Fund a Startup

Millennials, don’t worry. There are ways to make your dreams become a reality. Getting financing for your startup idea is possible, even if you’re still in college and want to start a business.

Here are the smartest ways to fund your startup.

1) Investment Crowdfunding

For many startups, investment crowdfunding can prove to be an invaluable way of generating funds for your business using the best business websites such as Kickstarter, Seedrs, and Crowdfunder.

It typically involves you appealing to investors and explaining the various benefits of investing in your business through creating articles, videos and holding live Q&A sessions.

However, in exchange for their funds, you’ll need to offer them equity in your business. This is one way to get the fund that helps you follow your startup aspirations.

2) Peer-to-Peer Lending

Just like real estate crowdfunding, investment crowdfunding, peer-to-peer lending (or loan-based crowdfunding) also requires you to appeal directly to investors across an online platform and can be very useful for both start-ups and small businesses alike.

If you’re able to convince them of the potential of your business idea, they may decide to join a panel of investors who will pull their funds together to form an Unsecured Loan.

Related: How to Find a Business Partner

3) Venture Capital

Need another idea to finance your business? Insert: venture capital.

Venture capital works by pitching to an individual or corporate investor and offering shares in your business.

In order to convince them to invest, you must show that your business has high growth potential growth or is currently experiencing rapid growth.

As such, you’ll need to present a well thought out business plan, a short summary of what you do, team summary, clear financial projections (cashflow forecasts, bottom line, business expenses, profits, and turnover) and a comprehensive understanding of how much capital you need to raise.

But before approaching investors, you need to assess which sectors they work with and check whether their goals align with your vision. Also, make sure you’re following the business small business accounting tips so your figures are accurate.

Related: 7 Types of Insurance You Need to Protect Your Business

4) Advances

Advances are different from loans in that they’re merely forwarding the money that your business would have eventually earned (future revenue).

So if you’re looking to raise funds for your small business, you could benefit from products such as merchant cash advance, revenue advance, or invoice financing.

  • Merchant Cash Advance: In order to generate an advance for your business, you’ll need to submit card-based sales reports (credit and debit card) for the last 3 or more consecutive months. This will enable lenders to calculate your average card-based revenue. So if you regularly take around $25,000 per month in card sales, then the advance that you’ll receive could be in the same region. The best part is that you can get a merchant cash advance even if you are a small business owner with bad credit.
  • Revenue Advance: Although similar to a merchant cash advance, a revenue advance takes into account the whole of your business’ monthly revenue streams (card and cash).
  • Invoice Financing: If your business is able to trade using business-to-business invoices that are worth in excess of $5,000, you could release up to 90% of the capital they contain though applying for a short-term Invoice Finance agreement. Once the debtor has fully repaid the invoice, the lender will release a balance (for example, the remaining 10%) to your business minus costs and fees.

Related: 11 Steps to Starting Your Own Business

5) Business Loans

Another way to fund a startup is through startup business loans. You may be eligible if your startup has been around for at least one year and is already making money.

Fundera is an excellent online marketplace for small businesses to explore when looking for financial assistance. Fundera provides useful instructions and tools to make the financing process simple, as well as a quick loan application procedure and several lending alternatives.

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Business Loans are typically secured or unsecured, and can be invaluable in providing a large lump sum for small and established businesses.

However, in order to make an informed decision, you need to understand how they differ and what that means for your business.

  • Unsecured Business Loans: allow you to borrow between $5,000 – $250,000 without the need to put unencumbered business assets (equipment, machinery, vehicles, and property) at risk. However, due to the amount of risk, this exposes the lender to, unsecured agreements are often subject to stricter lending criteria and carry more interest (compared with secured agreements). Nevertheless, this remains a very useful option if you aren’t currently a homeowner.
  • Secured Business Loans: on the other hand, a secured product could enable you to borrow anywhere between $5,000 – $1,000,000. This time, you’ll need to present the lender with security using your unencumbered assets. Although this may allow you to borrow more capital, you run the risk of having your assets repossessed should your business default on the fixed monthly repayment scheme.

Most often banks simply aren’t willing to provide a business loan if you lack business history or profits. If you’ve been turned down or delayed by traditional banks, alternative business funding is the way to go.

Related: How to Start a Micro Business in 6 Easy Steps

Ready to Start Your Own Business? Go Get It!

Starting your own business can feel very intimidating.

On top of forming an effective business plan and getting your basic day-to-day operations in order, you also need to ensure that you’re able to support your business’ growth.

Fortunately, these options to fund a startup are able to help, giving you access to a wide range of finance solutions for funding your startup.

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About the author

Brian Meiggs
Brian Meiggs
Brian Meiggs is a personal finance expert, and the founder of My Millennial Guide, a personal finance site helping you put more money in your pocket. He helps millennials follow the smart money in order to increase their earning potential and start building wealth for the future. He regularly writes about side hustles, investing, and general personal finance topics aimed to help anyone earn more, pay off debt, and reach financial freedom. He has been quoted as a top personal finance blogger in major publications including Yahoo! Finance, NASDAQ, Discover, MSN Money and more.
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