Do you have this big business idea and don’t have the funds to start it? Sounds like you need our 4 insane ways on how to fund a new business. As part of our small business resources guides, we are going to talk about funding.
Back to this big idea and being a short of a few bob – I know this feeling. I have been there before.
At this stage, you realize all the material things you need to kick-start your business. It could be an office space, website, human resource, and more. The sad thing? You have none! So what now!
How to fund a new business venture when you’re short a bit
This means you need some capital to start you off. As an entrepreneur seeking to start a new business, you will encounter many challenges. That’s a fact. But none of those challenges come bigger than seeking for money to fund a new business.
Of course, this is unless you were left loads of wealth from a relative or independently wealthy. If you are like most of us, you have to work hard to get some funding. Just to put your mind at ease:
A 2017 survey from Fidelity Investments found that 88 percent of millionaires are self-made
USNews.com
The fantastic news is, you may not have to look far to get funding for your new business. In fact, some sources could be closer than you may think. Continue to find out ways you can use to get capital to kick-start your business.
If you want some tips for working out how to pick your branding, check out this guide:
- How to brand your new business – The 0.1 Second Rule
4 Ways how to fund a new business venture
1 | Consider Bootstrapping
If your business is in an industry that requires less capital to start, ‘bootstrapping’ is a great source, to begin with. This method is more feasible than most entrepreneurs give credit for. Unless you are into manufacturing, or other capital intensive ventures, you should give this method a try.
But wait a minute! What does “bootstrapping” mean?
This term refers to the pulling together of personal financing to fund your business. This can include anything from savings, home equity, or even credit cards.
Considering the many snags, an entrepreneur may fall into in the course of running the business, bootstrapping is a good way to start.
Why? You will not have to worry about monthly payments to banks for borrowed money. In fact, some entrepreneurs love this method and continue bootstrapping until the business starts making a profit. A big advantage of using this method of funding a new business is investors seem to trust you more.
Always know this in case you may need to scale up the business in the future. Potential partners tend to be attracted to entrepreneurs who use this method to finance their business.
2 | Getting a Loan
Hey! Constantly remember that you can go through the old fashion way by getting a loan to fund your business. Despite technology providing an avenue for other financing methods, applying for a loan remains the most common method of getting capital.
Statistics by the small business association (SBA) show that up to 75% of businesses get financing from bank loans, credit cards, or other credit lines. That tells you that this is still the most popular method of funding new businesses.
“57 percent of startups are funded by personal loans and credit, while 38 percent receive funding from family and friends.”
Fundable as Quoted in Entrepreneur Magazine
If you go for credit card debt, know the interest rates can be a bit scary. So, instead of credit cards, you can try applying for a bank loan. The rates of personal bank loans are friendlier and may attract interest rates that range between 6.5% to 14%. Remember, this is dependent on your credit history.
This method on how to fund a new business comes with its bottlenecks. For instance, most banks require you to avail collateral before qualifying for a loan. This is either in the form of a house or a paid-up vehicle. Similarly, if you have a bad credit score, you may have problems securing that all-important loan.
Hey, don’t worry, there are ways a person can go around these issues. Start by looking for a co-signer. This is a person who is willing to take over the loan payments in case of default. This individual should have a good credit score to qualify. Problem solved in how to fund a new business venture.
Another avenue is a Merchant Cash Advance for once you are a little more established. This lets you borrow money against the takings from your card terminals.
One major benefit of these methods is that you aren’t handing over shares. If all goes well and your business picks up, you still own 100% of your thing.
Selling shares for capital is like a loan that is never paid. Worth thinking about.
3 | Go the Crowdfunding Way
Have you heard of Crowdfunding? This is a more modern way of funding a new business. There are quite a number of success stories of entrepreneurs who have gone this way. By making a proper pitch and a great product, you can join this elite club.
One of the best examples of Crowdfunding success is by Formlab in 2013. This company was able to raise $13million on Kickstarter to scale up its 3D printing business. When asked, which is the best way to fund a new business? I always say it depends on your financing needs.
But personally, this method is my favourite. Why?
It comes with several advantages. The main one is that with Crowdfunding, an entrepreneur can meet other like-minded people in different stages of growth. This aspect is significant when you need some valuable mentorship.
Also, an entrepreneur can gauge how his business is being perceived and how to improve it at an early stage. This can avoid realizing costly mistakes in the future.
Where can I crowdfund in the UK?
Some major names to consider are Crowdcube, Lending Circle and Seedrs.
4 | Find an Angel Investor
Our 4th avenue on how to fund a new business venture is to go on a hunt for an Angel Investor.
Who are these guys?
Angel investors are individuals with quite a large sum of money to invest in startups. If I were considering ways to fund a new business, I would start looking for these people. Knowing a few angel investors can be good when you need a source of capital for a new business.
But be careful funding doesn’t come that easy. Before investors invest their money, an entrepreneur needs to prove that the business is viable. Therefore, before approaching one, ensure you have a solid business plan and a sound pitch.
Make sure to capture the eye of the investor by showing enthusiasm in your story. Use data points to show the need the product or service is addressing, as well as the company’s future potential. This is crucial.
One great reason to use an Angel if you can find one, is very often they prefer to invest in sectors they have experience in, and can help you with more than just capital. Mentorship is an underappreciated source of value too. The kind of thing we offer with our Startup Consultations.
Ready to Take-off
Getting to grips with how to fund a new business can be one of the most challenging things for an entrepreneur. The good thing it comes with lots of learning points and can also be highly rewarding. Although there are several methods out there, the key lesson is always going for the one that suits you.
Likewise, if one method doesn’t work, you can always look for another source. The thing I can assure you is it may be a long road ahead. So the more friends you can gather along the road, the better. All the best, and good luck!
One bonus method because you got this far
At least twice in my life have I been able to access funds for a new business startup because it was in line with something another operator in the market wanted.
Let me explain briefly how this could be the secret trick in how to fund a new business.
Nearly every business thinks about setting up alternative versions of their business model. Maybe they focus on one niche of a sector and to cross over into the other sales strategy may damage their model. An easy example is a company that focuses on premium level service and is perhaps not the cheapest.
It will grind their gears (I speak from experience) to see other businesses offer sloppy service but mega cheap pricing. To do that themselves would eat into the original business’s ability to offer that high end servicing.
BUT they have all the infrastructure to spin out a new business with a different brand.
So why don’t they do it?
Well, it’s a day dream, it’s a whole new business, it requires so many hours spent on it, to make it work. Which is where you come in. You should look for potentially aligned businesses who aren’t your direct competitors and present your pitch to them.
You are giving them a fairly hands-off way to test a new market approach, be their own competition and have someone manage the stress of it all.
The level of investment wouldn’t need to be massive as they have much of what you would need and it can often present itself as a favourable set of circumstances.
Ocado joining forces with Waitrose in their first year is a classic example of how the model can work.
There you have it, how to fund a new business.
My work here is done
David at Deathground