Funding a start-up remains one of the biggest challenges for start-ups leaders. Once you are out of the initial phase, you will probably need additional funding to keep the start-up going until you can start posting a profit. A sad reality that start-up leaders have to contend with is the fact that they have to look for funding no matter how exciting and revolutionary their idea is. In essence, no one is going to know you need funding if you do not go out there and tell them. There are lots of traditional and creative ways a start-up leader can get financing for a struggling start-up and that is what we are going to explore in this article.
Equity financing is a popular option for start-up leaders. It involves selling company equity or stock to raise funds. In return, investors get a slice of the start-up’s ownership. When most people think of equity financing, they think about public companies, but it is still possible to structure equity financing options that will appeal to investors even when you are running a private company such as a promising start-up.
Lines of Credit
Lines of credit are a type of debt financing where a lender offers a business a specific amount of money that they can draw funds from. Contrary to loans where you get a lump sum amount and then repay that over a period, business owners can draw from lines of credit and repay the amount as many times as they wish as long as they do not exceed a set maximum.
Lines of credit come in handy when you need to deal with a short-term financing need and are not usually long-term options because lenders prefer not to structure them that way.
Get a Loan
A business loan is one of the most common ways start-up leaders get financing for their businesses, especially when they are just starting out and need a large infusion of cash. However, it might be a lot harder to get a loan if you do not have a business history or some assets you can put up as security for the loan.
A common route is to personally guarantee the loan. This way, you are personally liable for the loan and your business is not. To ensure you get the best terms possible, it is always a good idea to reduce your personal debt first. Remember that lenders will take a look at your finances to see if you are a liability or not and having a heavy debt burden will dent your chances.
A good way of reducing your personal debt is taking out a short-term loan, paying all your debts, and being left with just the loan to repay. New Horizons can help you do just that. New Horizons is a broker that helps business owners like you find financing by connecting you to different lenders. There are no fees associated with their services and there are no credit checks either. All you have to do is make an application through New Horizons, wait for the approval, and get the funding you need in 15 minutes.
Secure a Start-Up Loan
A start-up loan is different from a traditional loan in that it is usually backed by the government. When you apply for this loan, you will get an unsecured personal loan to fund your start-up as well as free guidance and support to help your business keep going. These loans usually have a very affordable interest rate of 6% and a repayment period of up to 5 years.
Bootstrapping is a good way of financing a business, especially when you are struggling after the initial phase and the business is relatively small. Bootstrapping involves putting your own money into the business, in essence becoming an investor in your own business.
The main advantage of bootstrapping is that it can open up other financing options. When investors and lenders see you have put your own money into the business, they feel comfortable in knowing you are confident enough about the business’s growth and survival. Because of this, they become much more likely to extend loans to you or present you with other financing options.
Crowdfunding has become very popular for struggling start-ups, especially those that have a revolutionary service or product. Crowdfunding involves raising funds from more than one person. The start-up leader posts its business on a crowdfunding platform, explaining what the business does, what products and services it offers, and why it would be a good idea to invest in the business. In most cases, those making the donations are given priority over products and services once the business starts offering them.
Besides helping struggling start-up leaders find the funds they need, crowdfunding can also be used as a marketing tool to raise interest in the business and its products and services before they are launched. Crowdfunding also saves you from interest rates you would have to contend with if you borrowed from a traditional lender or from answering to investors if you chose equity funding.
Get an Angel Investor
An angel investor can be an individual, group of individuals, or a business that has surplus cash to invest in promising start-ups. Angel investors usually fund businesses while at the growth stage and will usually take up to 30% in equity. In addition to giving you the funding you need, angel investors will sometimes offer advice and mentoring to make sure you steer the start-up in the right direction as they have a stake in it. One downside of angel investors is that they usually invest smaller amounts than venture capitalists.
Get Venture Capital
Venture capitalists are businesses that have funds set up to invest in promising start-ups such as yours. Venture capitalists invest in start-ups that are past the initial stages and are already generating some revenue. Venture capitalists want to see if your business is sustainable, can grow very fast, and can scale to become even bigger.
Once your business fulfills these three conditions, venture capitalists will usually exit and take their profit with them. Some choose to take the profit and stay on if the business is growing rapidly. Remember, they have a stake in the business and want to monitor their investment.
Use a Business Credit Card
Using a business credit card to fund a start-up is very risky because if you are late on your payments, your business and your credit score will both suffer. If you are not able to keep up with the payments, you will get into debt that you might never be able to repay. All that said, financing a start-up using a business credit card is a viable option if you are able to keep everything in check and use the credit card as a short-term financing option.
Consider Getting a Partner
If none of the methods above work for you, you could find a partner who believes in your business to take a personal or business loan on your behalf. You can share the risk between the two of you. Since you will be accountable to the partner, it will be much harder to let the business fail and cause your partner to default on the loans they took on your behalf.
There are lots of different business financing options for start-up leaders who require backing. Just ensure your start-up is in good standing to attract investors, and that it is promising enough to make profits that will make repaying any amount borrowed a lot easier.