For many entrepreneurs, the main obstacle in starting their business is getting initial funding, also known as seed money. Seed money can go toward purchasing resources like equipment and technology.
It can also go toward working capital. Working capital is funding for costs like payroll and other short-term daily expenses.
While it’s hard to know your exact startup costs, come up with a ballpark estimate. Then it’s time to think about who you can ask—and where you can look—for funding.
Sources of funding
Entrepreneurs can fund their business or startup in a variety of ways…
Personal Savings: Maybe you have been setting money aside to invest in your idea. Some entrepreneurs start out by dipping into their own funds, which is also known as "bootstrapping." This could potentially be a good option if you are thinking about starting a business later in life, too!
Family and Friends: Who has faith in you? Who seems enthusiastic about your idea? Think about friends or family members who might be willing to chip in. Offer to pay interest, and always put your payment plan in writing.
Partners: Do you already work well with someone? Consider people whose strengths complement your own. Maybe you’re into the design aspect of the business, whereas your friend is a numbers guy. Partners might not only have seed money, but experience and contacts that could be useful.
Angel Investors: “Angel investors” are successful entrepreneurs themselves. They’re interested in helping new entrepreneurs get off the ground in exchange for “equity,” or partial ownership. They can also give you advice along the way.
Venture Capitalists:While “venture capitalists” (or VCs) are similar to angel investors, they typically enter the picture later on and invest even more money. They’re interested in high-growth businesses, like promising startups, and expect higher returns.
Crowdfunding Platforms: Platforms like Kickstarter and GoFundMe allow you to set up a personal fundraiser. You can email the fundraising link to your family and friends or post it on social media. People can then decide whether or not they want to contribute, along with how much money they feel comfortable donating.
Grants and Contests: The government (as well as many big foundations and companies) are known for giving out grants. This might be the way to go if you are launching a nonprofit. You could also consider “pitching” your idea at a startup contest. A pitch is a short presentation about your business plan. Pitch contests award money so that the winner can start putting their plan into action.
Banks and Other Lenders: You can talk to a business loan officer at your bank’s local branch to see if you qualify for a short- or long-term loan. On your application, you’ll have to show that you’re able to pay it back—whether that’s through some saved-up cash or another form of “collateral” (like property). If you do qualify, make sure you are getting a fair interest rate and repayment plan. There are other lenders who give loans to startups, too.
The SBA: Once your business is up and running, you could also reach out to the Small Business Administration (or SBA) for a loan. They frequently partner with banks, and they have a special interest in assisting female entrepreneurs, minorities, and veterans. Keep in mind that these loans are one of the most sought-after, so the SBA has stricter requirements.
Many entrepreneurs get funding from more than one source. As the needs of your business change over time, you can always revisit these different avenues. It all depends on the financial needs of your company and what works best for you.
