The biggest delusion young entrepreneurs have today is that business plans themselves generate financing. While it is indisputable that you need a business plan for many kinds of financing options, the fact still remains that nobody is actually investing in a business plan. It is only a document that communicates information and your ideas to the potential investors, but the actual investment goes into a company, its products, and its people.
If you’re a young entrepreneur who is trying to start a business for the first time it is normal that you won’t have a strong business background. But that doesn’t mean it would be impossible to get the funding, although it may look like that at first sight. Today there are more ways to finance your business than ever before, but you need to be really careful when taking your pick. First, you need to be highly informed about small businesses, especially in what way and in which circumstances they might fail. The failure of a small business doesn’t have to become a big deal since it happens to everyone, but it can turn out into a big deal if the chosen investment is bigger than you can swallow.
Before you start looking for money you need to be fully aware of the precise needs of your company. That will tell you where and how to look. Ideas are everywhere, but their biggest flaw is that they are often misunderstood. Your idea might be as brilliant as Melanie Perkins’ Canva story, but it will end up unrealized if you don’t know how to present it to the right investor. There is the dead sea of ideas that could change the world but didn’t find their way to the right people, so we’ve prepared a list of ways you can take in order to make that change.
1. The Road of Tradition
This can be also called ‘the commercial way’, but every tradition is based on old rules and following examples of others, and this is exactly what this option is about. Today still three-thirds of young entrepreneurs seek the financing through a bank, which can be seen plainly in the statistics. There is nothing wrong with this option in general if you have the means to back it up. Banks are the main source of financing for small businesses, but they’re not that ready to invest in startups. The reason is simple – entrepreneurs starting a business for the first time usually don’t have a business plan that is detailed enough to fill in a complicated loan application. Banks offer a certain sum of money that they are sure you’ll be able to repay (along with an interest) through monthly installments over an agreed period of time. But if you have everything planned out (especially the future growth of company) there’s no reason not to go for it. Just keep in mind that you’ll probably need a qualified advisor to obtain the insight that will help you decide if this is the right option for you. Especially if you’re considering mortgage – in this case, it’s mandatory to acquire reliable insurance such as mortgage insurance Sydney has to offer. This is when the advantages of crowdfunding or any other types of business funding come to rescue.
2. The Road of Administration
This one is still semi-traditional since the loans of Small Business Administration (SBA) are in most cases also applied for and administrated by a local bank, so you again have to deal with the bank during the process. But despite the fact they follow the similar model, there is one big difference – the SBA guarantees a portion of the amount of the loan which reduces the risk to lenders, making them incentivized to lower the interest and to make longer payment terms. Furthermore, if your bank is a ‘certified lender’ getting the approval from the SBA will take only one week. Still, this type of startup loan doesn’t go without certain guarantees – normal requirements demand that the new business owner supplies at least one-third of the required capital, while the rest of the amount needs to be guaranteed by personal assets or reasonable business.
3. Switch to Machines
If you want to avoid suspicious bank employees that will look for every trace of uncertainty behind your eyes you could do what everyone does today – go online. People have used internet space for a long time now to avoid unnecessary difficulties – just remember how many times you’ve chosen to shop by simply clicking on products, comfortably seated in your chair. This way everything becomes simpler and those restrictive eligibility criteria seem simply to evaporate, providing you with much better chance to qualify. Note that this doesn’t mean the complete absence of any rules, so take some time to get to know them before you start browsing for money. Still, the advantages can’t be denied – besides less strict eligibility criteria and a minimum of waiting time there are a lot of personal offers on the internet that don’t require the collateral.
4. We Are The People
Moving further through the internet space we reach the youngest financing strategy with growing popularity – the crowdfunding. We’re back to the people, but this time we’re not talking about some strict regulations, but about the simplicity of personal taste. If you have created the product that people love, all you need to do is to provide them with a chance to support it by pledging money. Of course, you’re gonna need to give them something in return, but they will be satisfied with rewards (matching their funding commitment) that are far less than any bank interest. There are many crowdfunding sites out there, Indiegogo and Kickstarter being the most popular ones. The only problem with this tactic is that you’ll probably need to have something to show before the campaign starts. This could be just a small prototype of the business with a website at the center of it. That way you’ll be able to create the word of mouth that will attract more supporters.
5. Swimming With The Sharks
Although many start-up companies talk about venture capital as swimming with the sharks, this option doesn’t need to be a bad one if you’re ready for the swim. The thing is that this way of investment is frequently misunderstood. Venture capitalists are considered to have predatory business practices, but their practices are simply – business ones. These people are investing other people’s money, so they have a quite reasonable response to reduce the risk in the realm of possibilities. This option requires a combination of market opportunity, product opportunity, and proven management, so it’s practically reserved for companies that already had successful startups in the past. Still, if you are able to persuade a room filled with intelligent people that your business can grow ten times within three years, you’re ready for the swim.
6. Stairway to Heaven
If you’re reluctant to take a swim with the sharks, maybe turning to the sky would appear like the right solution. There are certain people called ‛angel investors’ who are wealthy individuals looking to invest in startups that will guarantee them a strong return. This alliance can be risky for both parties since you would have to give up a percentage of the company and your guardian angel runs the risk of startup failure, but there are no tricks behind it. On the other hand, the potential is obvious. Just keep in mind that the angel investor is in most cases a former entrepreneur so he’s been in your shoes, which means he also has some evaluation process prepared. The most important thing is to know how to approach them.
7. Family is Forever
If every above-mentioned way ends up in a dead end there is always one more place to try – home. I’m aware that turning to your family (especially if you’ve moved away long ago) is the last thing you want to do because it might ruin your ‘independence’, but you also need to be aware that people who are most likely to understand your ideas are the ones who brought you up. This is actually a very common way of financing a startup because all it takes are well-situated parents (in some cases even brothers and sisters). The money probably won’t be what you’ve expected, but you won’t have to worry about interest. The worst thing you can go through is some parental advice.
Maybe you’ve been wondering what’s so ‘wonderful’ in these ways to finance your business we’ve put together. Well, what if the bank readily accepts your business plan? Or if you realize people simply adore your new idea? Or you prove you’re tougher than ’the sharks’ everybody’s been complaining about? Or you really do find a guardian angel, whether it’s an ex-entrepreneur or a family member? Wouldn’t that be wonderful?
