You have a world-changing idea. On your whiteboard, you mapped a plan, created a budget, benchmarks, and a timeline. You can put a dent in the universe, if only you had the money to launch!
Fewer than 1% of startups ever receive any outside funding from banks or angel investors, but you can still fund any idea you have – You will have to fund it yourself!
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Every business venture needs capital to begin its work. The first thought of many an entrepreneur has been to consider a bank for a loan or pitch to an angel investor – someone who can provide, in one check, enough to fund the whole enterprise. You will find that a bank or an angel investor will look for the loans they provide or investments they make to be businesses with an existing track record. As a startup might not be there yet. Self-funding might be the way to go!
This concept of self-funding through resourcefulness is known as Bootstrapping. To do this successfully will require you to remain aware of areas you are self-sabotaging and judging the ways in which you can secure the money or the resources you need.
Use Your Own Money
Identify assets you have that you can turn into operating cash. Instead of asking, “How much money do I need,” the more important question to ask yourself is, “How little money do I need” to get to a place where this idea generates revenue?
Reinvest revenue from your current job. Investment of your assets serves as powerful leverage in addition to supplying initial capital. An entrepreneur who puts personal assets on the line shows more faith in their venture than someone who resists such risks. This investment might involve money from a personal savings account or even leveraging existing personal credit cards. You can sell things of value, such as a car, boat, jewelry, or collectibles. Perhaps you invested in other businesses. Those securities or stocks may have liquid value. Get creative and think long term. What can you do without now to build the legacy you’ll manifest later?
Use Other Peoples’ Money
After putting your own money where your business plan is, you can begin reaching out to others. Focus on networks in your control, you will need to think broadly about your family, friends, and extended networks and what you can do today to help you start generating revenue now. Someone you know may lend you money, invest in your business, or buy something from you right now!
If you need to rent space or to borrow equipment, you can ask your network for help. People don’t know what you need until you ask. A friend with warehouse space might provide a free or low-cost space or allow a delayed rental payment for several months while you generate revenue! We’re always surprised by what others have they aren’t using, such as audio and video equipment such as soundboards, microphones, and lights. People often have second monitors, keyboards, and printers they aren’t using.
You cannot over-value the networking available while working with incubator and accelerator organizations as well. They provide coaching and funding for new businesses. They assist with setting short term goals for your company’s growth and then provide the infrastructure support to help you get there.
Microloans and crowdfunding supply capital by allowing friends, family, and potential fans to pitch in. Microloans pay the investor off in the form of repayment, with or without interest. Crowdfunding allows for a range of rewards for investment. The investor could receive the product you make, or they could own stock in your company.
Peer-to-peer (P2P) lending organizations specialize in startup enterprises. They match your company with potential investors interested in your specific industry, increasing the likelihood that your well-thought-out plan can receive the funding it needs. Shared interests make for great long-term partnerships.
Use a Bank After All
There may still yet be a way to involve a bank for your business funding needs. With your venture even in initial stages, the banks will look at your credit score, not your business’ credit score, as they decide if they will help you. Given good credit and a good relationship with your banker, you may receive a line of credit from your bank. The line of credit sets a maximum borrowing limit, say, $100,000. You only need to repay what you borrow, and you only pay interest on what you borrowed. If your credit line is $100,000, but you only use $60,000, you only repay and pay interest on the $60,000.
Don’t forget to look for special loans that are government-backed (grants) or some other sources that are readily available.
You can look at business credit cards as well. Careful review of interest, interest rate increases and hidden fees can help you avoid overpaying for the use of credit. Apply for a card with an extended period of time, say nine months or a year, before charging interest or fees. If you pay off the card before then, you borrowed the money at 0% interest. The danger lies in not paying off the credit card in time. You would pay the full interest rate on your balance, which could be more than 21%.
You can find lenders who use revenue-based financing. These loans use flexible monthly payments based on your revenue for the month. If your income goes up, you pay more. If your revenue goes down, you pay less. The variable payment structure protects your bottom line from those inevitable slower months. Of course, as with all loans, you want to keep an eye on those interest rates. Shop around and find the best interest rate you can get.
As an entrepreneur, you must never let a lack of capital interfere with your dreams. An entrepreneur, by definition, is a risk-taker, problem-solver, and thinks outside the box. Remember, you need revenue, not funding! You can creatively raise the capital you need to grow through bootstrapping your business, you can – and you will – meet your funding needs even without a bank loan or an angel investor. Never. Ever. Give up!