Finding Funding for your Startup

Finding funding for a business venture is one of the most difficult things you will face as an entrepreneur.  Next to finding customers that are willing to pay for your product or service, accumulating enough capital to get your business off the ground is probably the biggest obstacle when building a viable business.  Obtaining financing as a business owner can be difficult today.  Although we are seeing some growth in the economy, banks and angel investors are still being much more cautious when it comes to taking chances on startups.  Additionally, credit scores have been damaged virtually across the board looking back on the last 10 years.  With one of the two circumstances affecting many budding entrepreneurs, looking for alternative funding is a must if you want to continue to chase your dream.

There are several forms of alternative funding that you can use to achieve startup capital for your company.  One alternative to standard bank loans are SBA loans.  SBA loans are used in most cases when all other forms of alternative funding are not available to the business owner due to certain circumstances.  The SBA backed loan tells the bank that is actually loaning the money that the government will cover a portion of the loan in the event that borrower defaults.  There are obviously additional regulations when utilizing an SBA loan, so regular funding from a bank is better if it can be achieved.  Otherwise, an SBA loan makes it less risky for the bank to take the chance and give you the money you need.

Invoice factoring is another form of funding for a startup business.  This is a good way to get money quickly for some businesses.  Once you have identified a business to work with and come to an agreed upon loan amount and conditions, you hand your accounts to the factor company.  The factor company will control all of the agreed invoices processing, take their share of their monthly payment, and send the rest to you.  This process continues until the loan has been paid off.  Once that happens, all accounts transfer back to your company.  The primary disadvantage of this is the control that is given to the factor company during the loan duration.  This risk is often times overlooked though, as there are many advantages for cash poor companies in need of funding.

When selling a tangible product, your supplier may be just the person to help you with funding.  Many businesses achieve funds for their business by striking a deal with their supplier.  The company in need of cash will receive a loan at a fair rate in exchange for a guarantee of business.  A “you scratch my back, I scratch yours” scenario, supplier financing can also offer additional benefits, such as the ability to utilize consignment shipping.  Companies often times ask for this clause in the contract with the supplier.  Doing so can save your company’s need for storage space and help in controlling overstocked items.  The biggest disadvantage is that you are now locked into that one supplier, regardless of how the business is working.  If the company were to outgrow the supply, things can be tricky for both parties on how to get out of the agreement or settle on new payment terms.

Probably the most hip, innovative way of capital funding is through the use of crowdfunding.  Many websites, such as Kickstarter and Crowdfunder, connect entrepreneurs with business opportunities with people who have the money to donate to their cause.  In return, the businesses receiving the funds have to give perks and/or rewards to those who put in money.  The biggest advantage of this is that you don’t have to pay the money back.  Additionally, funding can be easier for some as more people invest in smaller amounts.  The biggest disadvantage to this is the risk that your pitch doesn’t work.  If you set your goal at $10,000 for your venture and you only meet a $9,000 balance, all of the money is pushed back to those that donated and you leave with nothing.  This type of funding seems to be most popular with musicians and tech projects.

To bring everything together, the point I’m trying to make is to not get discouraged.  As I said before, almost every business owner at start struggles to get the money they need to get their company off the ground.  The good news is that there aren’t just one or two outlets to obtain funding.  If you work hard, do your research, plan correctly and understand your goals, getting the money you need to launch your business is just down the rabbit hole.  You just need to take the plunge.