For budding entrepreneurs, obtaining capital is the key to establishing a business. It is also the primary reason why so many business dreams remain unfulfilled. Fortunately, there are many ways to finance start ups these days. But what are these mysterious ways? We have compiled a few of the methods you can use to finance your start up so that you can more easily make your dream project come true and start generating revenue.
Different Finance Sources for Small Businesses
Capital is the primary concern when you are trying to set up a start up. Here are a few ways in which you can get the required funding for your would-be business.
- Personal funding
This is the simplest way to finance your business. Many budding business owners grow their personal savings over the years to finance their business ambitions. The advantages of this option are:
- You will be independent and do not have to worry about paying back a financer.
- There is no need to collaborate or enter into a partnership.
Personal funding is an informal method of financing a business. It can take the form of your own savings or funds borrowed from friends or family. But often budding entrepreneurs rely on loans since their own savings are not enough to finance their business. The key here is to make sure that the transaction is professional so it will not affect your personal relationship in case your venture fails and you are unable to pay back your investor/friend on time.
A creative new way of getting start ups started is through crowdfunding. The basic concept is simple: you raise the initial amount through an online campaign, appealing to people who may have some interest in your idea. This can be done through dedicated crowdfunding platforms like Kickstarter or even through your social media platforms, if you have sufficient numbers of interested followers. This works best for product-based businesses, and you can pay back your contributors with discounts, gifts and complimentary products once your business is up and running.
There are different forms of crowdfunding, and the following are the most popular options:
The concept behind this funding method is that pledgers contribute a certain amount of money and receive a reward depending on their contribution. This kind of funding is done for products that will have an easy sale like a popular gadget that everyone wants. However, there is no guarantee of receiving the money back as this is more of a donation.
In this case investors expect to get rewards in the form of equity in the business once it is successful. Here there is an expectation of a monetary return on their investment, unlike with reward-based crowdfunding. Hence, if the company does not earn profit, investors suffer a loss.
- Small business loans
Almost every start up requires some sort of loan during its initial stages. This may be a bank loan or a business loan from an institutionalized lender. Federal government sponsor programs that prioritize the funding of start ups are good sources of business loans. Note that these often have several eligibility criteria which you must meet in order to qualify. There are special loans for young entrepreneurs (between 18- and 39-years of age), for women, and loan-seekers who need less than $20,000.
Microloans are specifically designed for businesspeople who are struggling to get a regular business loan. They are peer-to-peer investments where several investors put down money into a start up venture to redistribute risk more widely.
- Angel investors
If your start up idea is promising and there is an assurance of high return, you may attract angel investors. These are wealthy individuals or retired company executives who are willing to invest in a growing business in return for a partnership or the authority to supervise the management of the company. This often involves a board of directors and contracts that assure transparency regarding how investments are going to be spent. Angel investors usually maintain a low profile and must be contacted through specialized organizations and websites.
- Government grants
There are many Canadian government agencies that provide grants and subsidies to new business owners. You can find listings of these government programs that fund new businesses at both the federal and provincial levels at the Canada Business network website. Getting government grants can be difficult as there are numerous formalities. Here are a few things you will need to provide in order to apply successfully for a government grant:
- Project description or concept explained in detail
- Explanation of the benefits of your project
- Estimate of the full cost of executing the project
- Experience and background of the business’s key managers
- Completed application form
Whether you are eligible for the grant will be determined by the significance of your project, your approach and methodology, assessment of its innovative and creative aspects, and whether the grant is necessary.
When you have a start up to finance, the various ways of finding business grants is elemental. The above-mentioned are some of the major solutions that entrepreneurs actively rely upon. Getting the money to start your business is your first step. Later, you will need efficient bookkeepers and accountants to help you make the most of your money by keeping proper records. Hence, as you research ways finance your business, strive to hire the right people for your team.