When it comes to actually making a startup work, it takes more than just an idea and your efforts. Every business, big or small would need funding to grow and this point is particularly true for the startups. The right early stage investment can make a huge difference in many of the aspects. Whether it’s hiring a new employee, investing in better technology or bringing the idea to the actual execution and in the market; everything of this will need some investment at first.
Finding funding for startups might look like an aimless and hopeless task in the beginning. But with the right knowledge, you can see the right places that can provide the funding and therefore you can place your startup where it needs to be.
Many of the entrepreneurs usually get confused on the best funding source they need to seek for this startup. With numerous options available, choosing the ideal financing can be quite an overwhelming process. While each financing option will bring investment to your startup, no two of them can ever be the same.
The types of financing sources available for any startup
Here are the funding sources open for various startups and you can go for the one that matches your startup needs:
Bank loans stand along the same line to the personal loans in some way, that means you are approved for a particular amount of funding with an interest rate. It is the funding source that bank provides with some interest and is to be returned after a period of time.
Eligibility: Small business loans for your startup would require a strong business credit. This will help in gaining a big loan with respectively low interest rate and will eventually reduce the overall loan cost.
Who it is ideal for: Any business or startup that has a decent credit with responsible spending habits is a suitable candidate for a small business loan. It will be better if you have a plan for investing the funds before you acquire them as getting a small business loan can be quite costly. And getting a second loan in the recent time being with the first one is quite unlikely so you need to spend the first one wisely.
- If your startup qualifies, the process is quite rapid
- You don’t have to give up equity or control of your business
- Requires strong documentation and good business credit score
- You have to pay back the loan, no matter your business fails or succeeds
Small business administration loans
Small business administration loans or the SBA involves funding from government administration devoted to helping the small businesses. The administration helps the small businesses to get funding and make sure that some percentages of contracts are given to the small businesses. The funding source can be availed from the banks and other financial institutions.
Eligibility: For getting a SBA loan, the startups must be registered as a non-profit business, and must be operating legally. The business owner cannot be on parole. And the business must have less than 500 employees, and average per year revenue of less than US$7.5 million for the past three years.
Who it is ideal for: SBA loan is ideal for the emerging startups that aim at nonprofit ideas and welfare of society at large.
- It improves the lender and borrower relationship
- There is an increased chance of obtaining a bank loan if you efficiently manage the small business administration loan.
- It has strict guidelines for qualification
The startups go through various funding rounds at the various stages. These are grouped in series like Series A, Series B, Series C etc. that correspond to the stage of startup or company. In each of the funding rounds, the capital is provided in exchange for equity. Various angel investors and venture capitals participate in the funding rounds to raise capital.
Eligibility: The eligibility of each funding round is different and will depend on the stage your startup is presently in
Who it is ideal for: If your start-up is comfortable in exchanging the partial ownership of your company for capital and you have a strong business plan Series A funding can be ideal for you.
- The capital you also receive the whole network of venture capital that leads the the funding round and also the other investors that participate in
- You have to exchange or give up company equity in return for the financing.
A Venture Capitalist is a private investor that provides funds for the promising startups. Venture capitalists are usually the members of any larger venture capital firm or private equities. These forms have boards that boat for the company’s they will back.
Eligibility: If the past ideation of your startup has a minimum viable product you can be an ideal candidate for a venture capital.
Who it is ideal for: The venture capitalists are the business people and don’t take any unnecessary risk. The startups that are typically ready for bringing their service or product to the masses but lack the funding are the startups who should seek venture capitalist funding.
- Along with funding the venture capitalist also offer mentorship and expertise for developing the business
- Venture capital funding gives startup the immediate credibility and help them in networking with important business individuals like partners and future investors
- You might need to provide a large share of a your business for the funding
Angel investors are the individuals that back aspiring business owners and startups. The only difference between venture capitalist and angel investor is that they are solo and are usually not involved with any board or venture capital firm. But just like the venture capitalist the angel investors also expect a return on their investment as they purchase some equity or ownership from the startup.
Eligibility: Angel investors look for an organized business and the startups that have a plan for moving forward.
Who it is ideal for: Angel Investors are usually the part of seed funding rounds and provide funding for businesses in their budding and initial stages. So if your business is a little more than just an idea you can go for an angel investment.
- Angel investors can provide valuable guidance and advice as they have industry experience you are just going to enter
- Flexible than a venture capital investment
- It might need for you to give up the control of your business to some point
Crowdfunding is where the startups or companies raise funding by small amounts of money from a large number of people. It is the funding time where individual investors for the private backers buy your product or service even before it is available or launched in the market. Any startup for business can easily organize a crowdfunding event locally or even over crowdfunding platforms as well.
Eligibility: The business owners that have an idea and want a chance to fund a project can accomplish crowdfunding events. Some of the platforms need the startups to present funding goals for providing transparency to the investors.
Who it is ideal for: Crowdfunding is suitable for your startup if you have a customer oriented services product.
- There are many financial risks
- It brings you early adopters of your product or service
- It is time taking process and will require dedication before you realise the actual results
Equity crowdfunding is quite like the crowd funding source with the point that a large group of people are involved in providing the investment. But unlike the crowd funding you don’t sell your product or service but rather equity in your startup.
Eligibility: Since you are not selling a product or service but rather an equity of your company, you can organize a crowdfunding event if you are an early stage startup.
Who it is ideal for: Equity crowdfunding is suitable for the startups that are comfortable in selling their equity and have a strong business idea
- You get a big pool of investors
- You have to sell your equity to various investors
Incubator and accelerator programs
Business incubators and accelerators programs are the dedicated groups that help expiring businesses in leading the market. These are usually the part of some big companies or venture capitals that want to help the emerging businesses to reach their complete potential. They provide working spaces, funding source, assistance and mentorship for startups to grow.
Eligibility: You need to have a strong business idea. Any virtually early stage business can be eligible for these programs.
Who it is ideal for: Accelerator and Incubator programs are best for the early stage startups that have barely left the ground.
- The incubator and accelerator programs provide all the sources that you would require to bring your startup to the market
- It is not easy for a incubator or accelerator program
- The incubator and accelerator programs have limited seats, and therefore have a strong competition
Your business idea is unique, and like there is no shoe that fits all, none of the funding source is suitable for everyone. So you need to think where your business currently stands and what you are comfortable offering to the investors for attracting the right capital or financing option. You can also take suggestions from various financial advisors for financial institutions to get a better idea. Also make sure you review your financial needs, qualifications and the urgency of capital.
We try our best to fact check and bring the best, well-researched and non-plagiarized content to you. Please let us know
-if there are any discrepancies in any of our published stories,
-how we can improve,
-what stories you would like us to cover and what information you are looking for, in the comments section below or through our contact form! We look forward to your feedback and thank you for stopping by!