Do you know that a large percentage of startups end up in the sewer in a year or two? And it’s not because they have bad products or services. Many of these startups begin with high investor confidence and innovative ideas. The problem is they are always short on capital. For a business to survive, it needs nothing short of enough amount of capital. It is the basic ingredient for a business to thrive. Without capital, forget about your great marketing ideas, expansion, and new product lineup. Proper financing is at the core of every business.
How you fund this business idea, of course, is entirely up to you. There are many ways you can do this—use your savings, apply for a business loan, crowdfund, and look for government subsidies. There is no wrong answer in this regard, but you have to consider all the factors that come into play when choosing the best financing option for your business.
Bootstrapping
If you have a small-scale business idea, the best option is to fund it yourself. Another way to do that is to borrow money from family and friends since they are more flexible about the loan terms than banks and other lenders. Make sure you have enough savings to cover the cost of starting the business. If you have no savings and no friends or families to borrow money from, you can look into a low-interest business credit card that will allow you to borrow money without interest for a period of time.
Royalty-based Financing
A lot of investment companies put money into business ideas that complement their mission and vision. You can check out what revenue-based financing option is available for the type of business you are planning. Investors are into tech startups and app development. If your business falls under these two categories, you can look into a profit-sharing scheme with your investors. This way, you won’t need to pay a high interest rate. What you will do is merely share a portion of your profits in the future with your investors.
Government Funding
In Singapore, the government provides 70% of the funding of a startup that improves existing technologies. That percentage, however, depends on the private investment that the business will raise on its own. The government will provide S$1 for every S$1 a private investor puts into a startup. This is a challenge for businesses to get as much private funding as possible since the Singaporean government has this investment capped at S$2 million.
Crowdfunding
It sounds easy, but launching a crowdfunding campaign is a lot of work. The most successful campaigns don’t only have good products to sell, but they also have good stories to share. You must show people the need that the products serve and why you require support. Like-minded people will help you raise the money you need by sharing your story. You will also need a good public relations strategy and your very own website for this.
Contest Wins
You probably have heard about Shark Tank. There are many kinds of contests that aim to help entrepreneurs launch their businesses. The idea is for entrepreneurs to pitch their business ideas to judges-investors. The judges will vie to fund your business as long as they are satisfied with your ideas, strategies, and plans.
The best thing about joining these contests is not even the chance that you’ll win but the chance to get featured on television or social media. The more people learn about your business, the more that they might be willing to invest their own money into it. All you need is exposure.
Microfinance Providers
Small-scale entrepreneurs who have poor credit ratings can rely on microfinance providers instead of conventional banking capital and loans. Whenever conventional lenders couldn’t release the money, business owners turn to microfinancing. The advantage of microfinance lenders is they don’t impose legal requirements usually asked by conventional banks, so small business owners are more comfortable dealing with them.
But before you go to a microfinance lender, exhaust all possibilities of borrowing from a conventional bank. Although microfinance lenders help small-scale businesses, they also impose higher interest rates, and they can only lend a small amount of money. For tech startups, a couple of thousands of dollars is not enough.
Your business will survive only if it has enough capital to get by. Unfortunately, without money, it will be hard for any business to flourish under the economic circumstances of these trying times. With too many competitions in the market, what will differentiate your business from all the others is your ability to explore, expand, and invest in new strategies, technologies, and campaigns. That all requires capital.
