Financing Options to Fund Your Business Idea
It is never a good business strategy to rely on a single source, especially when it comes to searching for financing options to fund your business idea. As a startup business, you must diversify your funding options as it will help weather potential setbacks if any of the funding pulls out of its commitment.
If you are an entrepreneur wondering what sources you can use to fund a business idea, this post is for you.
7 Sources to Fund Your Business Idea
Here are seven financing options worth exploring to fund your business idea.
Angel investors are typically wealthy individuals, including retired company executives interested in investing directly in small startup firms. The angel investors are mostly leaders in their respective niches and can bring their network of contacts and experience on board as well as fund your business idea.
An angel investor can be a useful financing option to give your business a takeoff with an investment of $25,000 to $100,000. On the other hand, venture capital from a financial institution will look for large investments of $1 million and above.
The most conventional financing option to fund your business idea is approaching a bank. However, you must research short-list banks that offer the best small business loans with customized repayment options. However, a startup business loan will require a personal guarantee.
This financing option focuses on the high-tech industry and offers support for startups in various development phases. A business incubator invites future businesses to share their premises and their technical, administrative, and logistical resources.
The incubation phase may last up to 2 years. Once your product is ready for launch, your business will leave the incubator’s premises and enter the industrial production phase.
You can always ask your parents, spouse, and friends to invest in your business idea. Bankers and investors consider this kind of funding as “patient capital,” the money can repay as your business earns a profit.
Grants and Subsidies by the Government
Governments provide financing options known as grants and subsidies to entrepreneurs. However, getting a grant can be tough due to strong competition ad criteria to qualify. You may also have to find initial funds to qualify.
For instance, a government research grant may have a pre-requisite for finding 30% of the total funding you need, and the grant will cover the remaining 70%. For this, you will have to provide project details, its benefit, a breakdown of the full cost, etc
It is always the first and best option to be your own investor. This way, you will not have to share credit and, most importantly, any ownership percentage with anyone else. You can use the cash/savings you have or collateral on the assets you currently own. This will further help you prove to the bankers and investors your commitment to the project.
First, you must remember that venture capital is not for all entrepreneurs. Venture capitalists are always looking for technology-driven business ideas that promise high-growth potential in sectors including biotechnology, communications, and information technology.
Furthermore, a venture capitalist will always ask for an equity percentage or position in your business when helping carry out high-risk projects. This means you will have to part ways with some equity or ownership in your business and share it with an external party.
A venture capitalist will also expect your business to generate healthy returns against its investment. Therefore, you must always look for investors with knowledge and experience related to your business.
Any of the above-mentioned financing options are good resources to fund your business idea. However, you must conduct some comparative research to determine which of these are best for business and personal interests.