According to statistics, only 80% of startups reach their second year of existence. And only 56% of them make it to the fifth year. Running out of cash is one of the top causes for failure (around 30%). Money is the “sunlight” of any company. The long, hard and exciting journey from an idea to a revenue-generating business requires a fuel named capital.
The timing and amount of funding depend mostly on the nature and type of the enterprise. If you’ve realized you’re going to need help, here are five different funding options startups typically consider during their first years of existence.
Quick ways to raise money without borrowing
There are two different ways for you to raise money for your business without the need to borrow money from someone else. However, these may not work for everyone. The first one is to sell your assets. While it is a tough step to take for any business, selling assets can help you meet your short-term fund requirements. Once the crisis is over, you can repurchase sold assets. The second is to organize product pre-sales. An average move in the gaming industry, selling your products before their official launch is an often-neglected yet highly effective way to raise the cash needed to finance your startup. Apple and Samsung often arrange pre-orders of their products well ahead of the official launch. This is an excellent method to improve cashflow and prepare your business for consumer demands.
Low-interest small business loans
Small businesses that have a hard time obtaining a bank loan can usually get financing from a small-business development center (SBDC), which provides assistance to local small companies. A number of community development financing institutions (CDFIs) – such as banks, venture capital funds and credit unions that receive funding from the Treasury Department – offer low-interest loans to startups. The mission of these companies is to provide capital and other financial resources to entrepreneurs who didn’t meet the criteria banks generally require – a good credit score, operating history or excellent revenue. The interest rate of this kind of loan typically varies between 8% to 15%, with the repayment schedule usually ranging from one to five years.
Unsecured business loans
Quite different from the traditional secured loans, unsecured loans require no capital to be placed against the amount borrowed. This can make it less hard to secure funds for your startup without having to risk valuable personal or company assets. Moreover, no security business loans providers don’t require a long-term trading history and suit new businesses looking to get their feet off the ground. You can typically fill out an online application within 10 minutes. Once all documentation is verified, you get the cash deposited in your bank account in a day or two.
There are different kinds of crowdfunding. You need to choose the best for your startups, such as equity-based crowdfunding or rewards. Crowdfunding is an efficient way to gather funds for startups with creative, innovative or artistic projects. Most crowdfunding options have low risk and offer the advantage of gathering feedback from the early adopters of your prototypes. Future investors will be able to view marketplace adoption if you go with crowdfunding, which can help you in different ways. For instance, as investors notice other people are willingly investing in your idea, they will be more persuaded to join and put their money into it.
Find an angel investor
When pitching to an angel investor, remember to be succinct, avoid jargon and have an exit strategy. Some other tips for winning over angel investors include:
- Don’t be a fad-follower. Did you start your business because you are actually passionate about your idea or because you want to monetize the latest trend? Angel investor can spot the difference and won’t give much thought to those whose companies are essentially get-rich-quick schemes.
- Add experience. Seeing some gray hair on your management team will ease investor’s fears about your startup’s ability to deal with a tough economy.
- Know what you’re talking about. You’ll need competitive analysis, market assessments, and solid marketing and sales plans if you expect to get anywhere with an angel investor.
While it may seem difficult at first, finding funds for your young company is quite within your grasp. You just have to research your options, find the one that suits you, and you will be well on your way to protect your startup from any cashflow problems.