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How to finance a startup business

Perhaps you feel you have an idea for a business that’s going to rock the world. You’re fired up, committed, and you’ve got a plan to disrupt a specific industry. You just know you’re going to be the next Bill Gates, Steve Jobs, Elon Musk, or Richard Branson. That is, if you can get financing for your startup business.

You see, grabbing the cash to get your enterprise going can be more than a challenge, especially when other entrepreneurs are competing for the same funding in droves. As more than 80% of all would-be business owners contend for startup financing through lines of credit, bank loans, and credit cards, it’s harder than ever to find the money you need to get going.

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However, does that mean you should tuck tail and whimper off into the night? Of course not! (Do you think the world-famous entrepreneurs previously mentioned ever let a financial challenge stop them?)

Below are dependable methods that should provide some inspiration on how to finance a business.

Startup Business People Working Together

Look into angel financing

In case you don’t know what an angel investor is, the Merriam-Webster Dictionary defines the term like this: “A wealthy person who invests a large amount of money in a new business.”

Specifically, these wealthy individuals typically put their money into startups or early-stage companies. In return, you give them an equity-ownership interest. The investment size you can expect from angel investors varies wildly depending on the investor, but in general, investments average between $25,000 and $100,000.

Pay attention to what angels care about

Angel investors care about a few things in particular. Just some of these things are:

  • The integrity, passion, and commitment of the startup founders
  • Market opportunity
  • The practicality of raising additional funds
  • The growth potential of the startup
  • A clear and thoroughly thought-out business and marketing plan
  • Reasonable terms of investment

How to find angel investors

Many people who hear about angel investors think the process of finding them is uber-mysterious. However, it doesn’t have to be. For example, you can ask other entrepreneurs, accountants, or lawyers for introductions. You can also look at angel-investor networks such as:

Then, there are investment bankers and venture capitalists to explore.

A great way to learn how to finance a startup business through angel investors is to invest in books on the subject like Angel Investing: Matching Startup Funds with Startup Companies — The Guide for Entrepreneurs and Individual Investors by Mark Van Osnabrugge and Robert J. Robinson.

A pro tip is to remember that individual angel investors are much more likely to invest in your startup if they’re already familiar with your industry and have invested in it before.

Think about crowdfunding your startup

Crowdfunding is the practice of acquiring funds through many (typically small) donations made by many different people. Thus, the term “crowdfunding.” And, there are a number of crowdfunding sites out there that could help you raise funds for your startup.

However, knowing how to finance a small business through crowdfunding can be tricky.

Outside of potentially raising money for your startup to launch, you can also use these websites to help raise money to market your products and services. It’s not hard to set up a crowdfunding campaign, although you should definitely have a well-thought-out strategy before starting one. Most articles you’ll see on the Internet go on and on about how you need a compelling story, smart visuals, and cool “perks” for those who decide to sponsor you.

Still, the secret ingredient most don’t talk about is traffic. Nobody is going to donate to your crowdfunding campaign if no one knows about it. Simply Tweeting or posting on Facebook (or LinkedIn) isn’t going to do the trick unless you’ve got a bajillion followers on each of those platforms. Even then, it may not be enough. Having some kind of paid advertising campaign in conjunction with organic traffic strategies can be the difference between your campaign suffering a quick and silent death and wild success.

You also can’t run a campaign by yourself very effectively. Your whole team must be in on it and promoting it. Your first few days once you launch a crowdfunding campaign are the most crucial.

Crowdfunding platforms you should look into for potential startup funding are:

Look at credit cards specifically for small businesses

Entrepreneurs wondering how to get financing for a business could do worse than to look into credit card companies that cater specifically to small businesses. There are a number of benefits to doing so. For example, you’re likely to find that these companies offer incentives like airline mileage points or cash-back rewards.

However, you have to be careful with these kinds of credit cards, just as you would with any other. Many are tied to your personal credit history and credit score. If you’re late on payments, it would negatively impact your own, personal credit rating. Moreover, interest rates are usually high and can range between 5% and almost 20%.

Most of the big banks permit you to apply for a small-business credit card. Be that as it may, there are other credit card issuers now that will issue a card without the need for personal guarantees. In other words, using the card won’t impact your credit score at all.

When it comes to small-business credit cards, the bottom line is that you should do your due diligence and explore your options. Then, make a smart decision.

Business People Discussing Financing

Never give up

There are a great variety of ways to fund your startup. Use your savings. Get a loan from family or friends. Get a bank loan. Look into angel investors or crowdfunding. Seek government assistance. Explore venture capital.

Just remember that you’re not a beggar with your hat in hand. Every single person or institution that gives to you stands the chance of receiving in return. And, while it can be challenging to obtain the financing you need, if you remain committed to your ideas, and you refuse to give up, your chances of success are 100% greater than if you crumble when you hit the first obstacle in your path.

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