Starting your own business is an exciting endeavor. Many dreamers disenchanted with the daily grind of their 9-5 job, dive headfirst into the startup rabbit hole. Don’t jump yet. Before you can even get the business off the ground, you will need to come up with startup capital. As a potential business owner, you can use a variety of strategies to come up with the funds.
4 Ways to Get Startup Capital For Your New Business
1. Crowdfunding Campaigns
Businesses that rely heavily on selling an innovative, fun, or technologically advanced product might want to consider starting a crowdfunding campaign. Crowdfunding allows inventors, artists, and business owners to receive the capital required to create their product.
Crowd funders set up a campaign page, explain their product or idea, and then set a monetary goal that needs to be reached. The person in charge of the campaign sets different amounts that people can contribute. Each different amount has a different level of award granted. On top of that, exceeding the stretch goal usually grants additional features.
Small business administration (SBA) loans are pretty self-explanatory. A bank loans you the capital to start your business. In order to acquire that loan, the potential business owner will need to put a lien on their house or some other possession of high monetary value.
A lien means that the creditor can take possession of the house or possession if the business owner fails to pay back the loan. The only marginally good news is that unlike student loans, individuals can declare bankruptcy to remove the SBA debt. Unfortunately even with the removal of the SBA loans, it can take around 10 years to financially recover.
If you go down the SBA loan path, watch your finances carefully. Failure hits hard.
3. Equity Investors
Not sure what an equity investment is? Think ABC’s hit television show Shark Tank. When business owners accept equity investment, they receive a certain amount to finance their business from the investment. In return for the financial contribution, the investor now owns a portion of the stock in the company. When the company goes public or sells, they will receive their share of the profits.
You need to be careful when you accept equity investments that you don’t sell too much of your company. You can track how much of your company a potential equity investment is worth with this equity investment calculator.
4. Sell Your Idea
Whatever type of funding you pursue, you will need to carefully come up with a business pitch. If you want a good idea of what not to do, take a look at Kanye West trying to convince people to invest in his ideas on February 14th and 15th of 2016 on Twitter.
Let us count the ways that Kanye West went wrong here.
One: No hash tags. The people he wanted to see those messages never even went to them.
Two: Increasingly desperate tweets are a tad too informal when asking for thousands of dollars. Requesting a meeting in person or over the phone would be a far more professional method.
Three: Yes, you don’t have the money, but don’t focus on that. Potential crowd funders, investors, and banks already know that.
Four: Make the business idea as concrete as possible. A vague declaration of a desire for start-up capital is not enough. Banks, individuals, and investors need to know exactly what your brilliant idea is and what you will do to ensure it succeeds.
Five: A Me, Me, Me attitude won’t get you anywhere. While it would be nice to use other people’s money, unless you’re opening a charity, most people just won’t hand over their money to you with no strings attached. Be sure to make it clear what they have to gain.
Startup capital is necessary to start any business. Thankfully entrepreneurs have many options. As you pursue start-up capital just ensure that you don’t follow the Kanye West philosophy. With proper planning, a tight rein on your finances, and a little luck, you will one day have a successful business.