Getting a Startup Funded In Six Easy Steps

| Equity Funding for Startups

Getting a Startup Funded In Six Easy Steps

Want to Learn How to Get Your Startup Funded?

Want to Learn How to Get Your Startup Funded? Then read no further than this article. Here we will go over a checklist of items to give you the best chance of receiving funding for your big idea!

Step 1. Borrowing Money From Family and Friends

Starting up a business is both scary and exciting, and your friends and family know this.
Your friends and family will be easier to convince to invest in your company rather than actual banks for investors. Those who know you and support your dream. Although they are your friends and family, you should always get legal advice before making financial decisions. Be cautious when choosing this route as using money from those close to you can be tricky if things don’t pan out like planned.

Step 2. Apply For a Small Business Loan or Grant

Another way that small businesses can fund their startups is by applying for small business loans or grants through banks, although this can be a challenging way as banks are extremely cautious about who can qualify for a loan. Alternative lending companies are available who may be more capable of helping small businesses get started but they may trick you into signing into contracts that you do not want. It’s important to understand what you are signing up for when using alternative companies, as some of them can be eager to scam you for money.

Grants for small businesses are determined based on a selection process through categories. These grants are typically dispersed through Chambers of Commerce centers or local chapters, but it’s important to read carefully about where these grants are coming from as some may require you to pay it back or agree to certain conditions later on about your business. Knowing what you are agreeing to before accepting funding is crucial, this processes should take time as if rushed can lead to bad financial decisions

Step 3. Using Your Own Saved Funds

A common way that most small business startups try and get their brand going is by providing through their own savings funds. By doing this they no longer need to rely on family and friends or get into legal deals with banks and third party providers. This can also involve credit cards with low interest or using lines of credit on your home. This is a risky investment because small business owners will need to make sure that their credit score can handle the financial strain that is bound to happen. Making sure that you are prepared for the struggle of keeping both your business and yourself afloat is pivotal to succeeding, otherwise if the startup does not prosper, debt will loom over you.

Pros of using your own funds:

No tricks or fees for loans and grants
You are in control
Can save money in the long run
Allows more focus on business plan and developing service or product

Cons of using your own funds:

Money sacrifices
May need to work another job on the side
High risk investment
May hurt retirement plans
Debt building

Step 4. Crowdfunding

Crowdfunding is most often done online instead of networking in person. There are many sites that allow startups to sign up and get supporters. When crowdfunding, it’s important to use social media to help your campaign grow. There are two types of crowdfunding, donation fundraising and investment crowdfunding.

There are both advantages and disadvantages to crowdfunding.

The pros of crowdfunding:

Low financial risk
Possibility of campaign going viral
Donation fundraising means no equity lost in your startup
Build a community of supporters

The cons of crowdfunding:

Time consuming
Must invest in marketing and advertising
Fee’s depending on what crowdfunding site you use
Fundraising goals not met and fall through

The top 5 crowdfunding sites:

Step 5. Contests

Applying for business plan contests have their ups and downs. Mini shark tanks mimic the look and feel of the real thing. They can be great ways to connect your product or service to your target market and the community. Finding local contests can be challenging but finding your nearest US Small Business Administration can help startups get a decent timeline for future events.

Pros of local contests:

Helps small businesses plan strategically
Contest prizes can help convince further investors
Connections and community exposure
Gain credibility among target market

Cons of local contests:

Cost and benefit losses
Not focused on target market but investors instead
Lose focus on business and more focus on contests
No investment guarantee

Step 6. Accelerator Business Programs

These businesses are relatively new and have began to grow steadily across the country. A startup might choose one of these because it can help them grow while also learning the ropes of the market. Young entrepreneurs are able to start their company while also making connections, but even though it’s a great opportunity, understanding the technicalities that go along with these accelerator businesses are important.

Pros of using an accelerator business:

Provide positive accreditation
Help stack you up against competitors
Network connections
Brand product/service recognition to target market

Cons of using accelerator business:

Accelerator businesses want a stake in your company
Little room for trying new things and straying from the plan
Forced networking events
Lots of commitment

Regardless of what a startup chooses to use, there are many options out there to get you funded. Think critically about the risks involved in each funding option and choose the best fit for you and your company.