Let’s say you’re in your mid-30s, still employed but you want to open a shoe outlet. Which funding methods would be suitable? Let’s take a look at the available options.
- Self-funding/ bootstrapping
Bootstrapping is when you use your own money to fund your business. It comes with little or no bureaucratic obstacles (you answer to yourself). Funds are easily accessed, decisions quickly made and it comes with low interest rates.
- Business incubators and accelerators
What’s an incubator? These are programs that focus on the early stages of a startup. While accelerators focus on speeding up the growth of existing companies. The programs are created to provide startups with access to resources they require to grow from capital, mentorship, office space to even employees.
- Friends and family
What a better way than your friends and family investing in your idea. This is one of the low-risk types of funding. You’re assured of low interest on money borrowed and time for repayment. Though informal it’s always best to have an agreement.
Crowdfunding is taking a small sum of money collected by a large group of individuals. This form of funding is usually found online. Where You pitch directly to the crowd in hopes to raise money. If successful, the crowd donates to grow your business and the crowdfunding websites takes a small percentage of the money received.
- Angel investors
Who is an angel investor? These are people with huge amounts of capitals and are willing to invest it over the edge business ideas. They are willing to take risks on these business ideas with the hopes of making huge returns on their investment.
- Venture capitalists
These are professionals that seek out companies with great prospects. They closely monitor companies they invest in to ensure sustainability and growth. The partnership is usually short between 3-5 years. once they recover their investment and profit you part ways.
- Debt financing
Usually more challenging for a startup to secure a loan with no existing financial record or collateral. However, some financial institutions offer capital to startups depending on the financial projections. Debt financing examples are bank loans, credit cards, debentures and bonds.
- Government business grants
These programs require you to submit your business plan to a grants committee for approval. Once approved you’ll be provided with the funds needed to start your business. The downside is corruption and the time taken for approval while the upside they offer substantial funding.
Bootstrapping could be easily seen as one of the best funding methods to kick start your business. Though to be competitive and assure your business is successful, you’ll need to use the other funding methods as you grow.