Establishing a successful business is not a child’s play! It is a long and hectic journey which requires full concentration and a lot of resources. While every stage in this journey brings its own challenges, the hardest of them undoubtedly is the arrangement of funds. It requires out-of-the-box thinking, strategic approach and extensive homework for carefully working out all the available funding options you have.
In this context, here are top 5 ways to fund your small business.
- 1. Friends and Family:
A very common yet effective way to fund your small business is through family and friends. A logical reason for this that your close ones know you the best and believe in you and your capabilities. Even if they do not see any chance of a shining return on their investment, they are most likely to pool in the resources for helping you round up the capital. This being said, do not forget that borrowing money from friends and family would sometimes mean risking your relationship with them, so borrow just enough money to put your business on track and keep looking for alternative funding opportunities as well. In my case, for my Internet project www.mercatrade.com, I did a combination of my own savings, some money from family and a small bank loan.
- 2. Venture Capitalists:
Another traditional means of funding your small business is through investors or venture capitalists. In fact, this can often lead to a very fruitful business partnership through which you can later expand your business or even start new ventures. As attractive as it seems, before opting for this way, you should keep in mind that your investor or Venture capitalist would actually own a share in your business and you would have to keep his/her consent in view before making any strategic decisions. Nevertheless, with clarity of goals, transparency in operations and a little effort towards trust building, you can reap the long term benefits from this arrangement.
- 3. Crowd funding:
Crowd funding is being regarded as the next big thing in business start-up community. All you have to do is to pitch your business idea, through crowd funding community websites, in the best possible way and state an investment milestone you desire to achieve for the start-up. For attracting the site users, you can set up certain rewards or recognitions for potential contributors. For example, if you plan to open a beauty parlour, you can offer free manicure for a contribution of say $30. If your idea gets to the heart of the site visitors, they would contribute towards achieving the milestone. A drawback of this funding option is that the transaction cost can be as high as 10% of the total funds raised.
- 4. Bank Loans:
If you have a solid business plan, one of the best options for acquiring the seed funding would be to apply for a bank loan. Of course this is not as easy as it sounds since banks have certain tough standards and requirements, but if you succeed, you would realize that all the efforts were worth it. Now a days, you can find many private companies offering their services to offer loan advice or even to carry out the leg work required for acquiring bank loans. Taking help from these companies is also a good idea in this regard.
- 5. University Funding and Government Grants/Loans
Several renowned universities across the world support new business ventures which in some way offer synergistic benefits to both parties. So, one way of funding your start-up is to go and pitch your idea to a local university, preferably the one from which you have graduated.
Moreover, governments often announce small business grants/loans to encourage entrepreneurship. If there is such ongoing program in your locality, this can be one of the best potential source of funding your small business.
Patricia Maroday is an internet enthusiast and major advocate of online business opportunities wordwide. She is a co-founder of www.mercatrade.com,a B2B online trade portal for companies looking to expand their distribution channels in South America.