Many startups fail because of a lack of business funding. In this article, we will share different methods you can use to get business funding for your business venture.
1. Fund your company with self-financing
Self-funding is when you use your own money to fund your business. With self-funding you can either use your own savings, pension, or any other money that you have to fund your business or you can ask family and friends to help you fund your business venture. This is by far the best method to use as business funding for your business because you won’t have to pay the money back and if you fail you won’t owe anyone.
You maintain full control over the company with self-financing but take all the risk yourself as well. Be careful not to spend more than you can afford, and be especially careful if you choose to tap into retirement accounts early. You might face expensive fees or penalties, or damage your ability to retire on time — so you should check with your plan’s administrator and a personal financial advisor.
2. Use venture capital as a source of business Funding
You can approach investors to give you money to start your business. Investors usually invest their money into businesses, and you can use them to get business funding to start your business in the form of venture capital investments. However, you should note that venture capital is normally offered in exchange for a stake/ownership share and active role in the company.
2.1 Venture capital typically:
- Focuses on the potential of the company. That is the companies ability to grow.
- Invests capital in return for equity, rather than debt (it’s not a loan)
- Takes higher risks in exchange for potentially higher returns
- Has a longer investment horizon than traditional financing
- Has a longer horizon of investment than traditional finance.
Nearly every risk capitalist wants a seat on the board of directors at least. So you must be prepared to surrender some ownership of the company if you want capital under venture capitalist. This whole idea of giving ownership of your company is not bad at all because you’ll have experienced investors as part of the board of directors which will bear positive results for your business.
2.2 Getting venture capital business funding
There is no guarantee of risk capital, but the process usually follows a standard order of fundamental steps.
Look for an investor
- Look for private investors – or venture capital firms—usually called “angel investors.” Be sure to conduct sufficient research background to see if the investor is reputable and has expertise in start-ups.
- You have to share your plan with them – The investment plan will be reviewed to ensure it meets the investment criteria of your business plan. The majority of investment funds focus on an industry, a geographical area, or an economic development phase.
- Due diligence examination – The investors will examine your management team, market plan, products and services, corporate management documents, and financial statements of your company.
- Develop the terms and conditions – The next step, if they want to invest, is to agree on a term sheet describing how the fund will make an investment.
- Investment – You’ll get the investment following your agreement on the terms of the investment! then the company will get active. With milestones met by the company, further financing rounds are made available, with price adjustments as the company implements its plan.
3. Using crowdfunding as a source of business funding
Crowdfunding is the form of business funding that results from many people known as crowd funders. Technically, crowd funders differ from investors in that they don’t fund to get a stake in your company or return on their investment.
Instead, crowd funders expect their contribution to receive a “gift” from your company. This gift is often the product that you plan to sell or other special benefits, such as meeting the business owner or entering its name. This is a popular way for people wanting to produce creative works or a physical product.
Crowdfunding is also well known because the risk to business owners is very low. Not only do you have full control of your business, but you are usually not obliged to reimburse your crowdfunders if your plan does not. Each crowdfunding platform differs, so be sure to print your material and understand your full obligations both financially and legally.
This is a great way to get business funding for your business. There are no risks and you have full control of your business.
4. Government Funding
Government funding is also a great source of business funding for new and existing businesses. Most governments invest tons of money in businesses, the main objective being to reduce unemployment and poverty.
Businesses are known to be a great source of employment and if your company has great potential for growth, and convinces that it will contribute to the GDP of the country then the government is more likely to provide funding for your business.
You can approach your local municipality to enquire about the available funds they have for businesses.
As a bonus here are two companies you can get funding from