Millions of people get excited about the idea of starting their own business. But, the logistics of getting a business started are challenging and complex. One of the earliest hurdles you’ll need to overcome to be successful is getting your business funded. In other words, to fund your business, you need to collect enough money to pay for your business’s initial needs. These needs include an office, staff members, and equipment. Depending on your business model, these costs could be inconsequential or startlingly high.
Many entrepreneurs end up struggling to get their business funded. But, why is this the case? And, what can you do to overcome this obstacle?
The Struggle to Fund Your Business is Real
Let’s start by dissecting the struggle. There are several possibilities, and you may be struggling with one or more of them:
There are many different ways to fund a business. Not all of them are going to work for what you need. If you try to seek funding from a channel that isn’t appropriate, you probably won’t end up with the funding you want.
There’s a chance the problem could lie with your business idea. While it might sound cool in theory, there may be underlying logistical problems that prevent venture capitalists and angel investors from investing. Usually, these problems can be ironed out with various tweaks. But, occasionally, you’ll need to scrap the idea and start over.
Sometimes, it’s less about the strength of your idea and more about how you present your idea to your target audience. If you fail to sufficiently highlight your idea’s scalability or if your financial projections don’t seem well-researched, it could turn off an otherwise interested investor.
Some businesses require significant capital before they can get started. You might be able to get $50,000 from a handful of different sources. But, if you need $80,000 before you can start, you’ll be left with a non-negligible shortfall.
Competition in the business world is fierce and worthy of the stress you’re inevitably experiencing. VC firms, angel investors, and even crowdfunding donors constantly review new business ideas. If your idea doesn’t stand out or if it’s too similar to someone else’s, then you might be dead in the water.
Your Main Funding Options When You’re Struggling to Fund Your Own Business
If you’re having trouble with channels, presentation, funding volume, or persistent competition, you can overcome that problem by seeking funding through different channels.
Trying to get funding from a new source may be exactly what you need to secure your business’s funding. Also, tapping into multiple channels simultaneously could help make that final push. These are some of the most common and reliable funding options:
First, you could try to fund the business yourself. If you already have a chunk of liquid cash, you could funnel it into the business. You could also tap into a retirement plan like a 401(k) to get the money you need for the business. Another option is to take on a second job and use the proceeds to achieve the financial level you need to get started. This is a preferred method of self-starters. However, it generally takes a long time to develop or puts you at high financial risk.
Personal Loans and Credit Cards
You could also take out a personal loan or start using credit cards to pay for your business expenses. If you look for car title loans in Bakersfield, for example, you can use your car as collateral for a loan. That could secure a favorable interest rate while the principal fund the business directly. If you use a combination of loans and credit cards, you can likely get access to tens of thousands of dollars. Of course, this puts you at enormous financial risk. If you’re taking out personal loans and the business goes under, you’ll still be responsible for paying those loans back.
Friends and Family
Depending on your situation, you may be able to gather funds from friends and family members. If you have a small gap to close like a few thousand dollars, you could ask for a low-interest loan from someone you trust. If you need more, you could ask friends and family members to actively invest in your business. For example, if you need to raise $50,000, you could offer to give them 20 percent equity in the business in exchange for $10,000.
Grants and Awards
There are likely many opportunities to find grants and awards for starting a business in your area. For example, your local government may be willing to give a token amount like $1,000 to entrepreneurs who start a business in your city. Or, there may be a county-wide competition for entrepreneurs to enter where the top prizes are investment capital you can use to fund the business.
Venture capital firms are dedicated to investing in emerging startups for their own self-interest. Typically, they provide some or all of the funding you need to get started in exchange for a share of ownership in your business. VC firms tend to be discriminating. Therefore, they aren’t a sure bet. Plus, they might force you to set up your business in a specific way. If you have a good business plan and a way to make significant revenue, they may be one of your best options.
Angel investors are a good alternative to VC firms. They work very similarly by providing investment capital in exchange for a fixed percentage of ownership in the business. However, they tend to be individuals or small clusters of individuals rather than existing as a business entity of their own. You can meet angel investors pretty much anywhere if you know where to look. Also, they may be more open to conversation and persuasion than a VC firm.
There’s also crowdfunding. In case you aren’t familiar, crowdfunding is the process of making a concept available for public investments or contributions. Depending on the nature of your business, you might ask for donations to fund the development of a new product. Then, you distribute copies or samples of your product to all the people who donated above a certain threshold. Or, you might be able to seek equity crowdfunding. This type of crowdfunding allows each donor to acquire a fractional share of ownership in your business.
Key Tips If You’re Still Struggling to Fund Your Own Business
If you’re still struggling with getting funding for your business, try these important steps:
Revisit Your Business Plan
Take the time to revisit your business plan. If you’re getting turned down by multiple people and finding dead-ends with multiple channels, the problem could be with the nature of your business (or how you’re presenting it). Don’t be afraid to make changes even if it means gutting your original idea. A new angle could be just what you need to get financing.
Broaden and Diversify Your Channel Options
Some entrepreneurs get stuck in one mode of thinking, prioritizing, or even glamorizing one method of funding above all the others. But, it’s usually better to be open to multiple possibilities or seek funding from multiple channels simultaneously. There are advantages and disadvantages to every option.
Consider Lower Costs
If you’ve projected a need of $100,000 and you’ve only raised enough to cover $60,000, consider revisiting your cost projections and trying to start with less money. Are there desired expenses you could delay until the second phase of your business’s development? Oftentimes, starting with a minimum viable product and expanding later is preferable to starting with everything you envision all at once — and for more reasons than just closing the funding gap.
Get Constructive Criticism
Be willing to get constructive criticism. If you have a fully developed business plan and a pitch deck you’ve been showing to angel investors who don’t show interest, ask them what you could do to improve it. Consider getting a mentor, or working with other entrepreneurs in a similar position. The more information you collect and the more you’re willing to change, the better.
Few business owners have the luxury of fully funding their startups from the outset. However, even if you run into a bit of trouble initially, you can usually find a path to success if you’re willing to adapt. Stay aware of all the variables associated with your business and its future funding, and keep trying different approaches until you get what you need.
Republished by permission. Original here
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