Millions of people start businesses in the US every year. Launching a business can be the adventure of a lifetime, but those who take the plunge should expect to face various types of challenges. Perhaps the most significant task for first-time entrepreneurs is obtaining enough financial backing to open the new company’s doors.
Fortunately, there are multiple tactics and approaches that can minimize the headaches that often come with starting a business. Getting the necessary capital might not be easy, but with dedication and patience, anyone can leverage one or more of the following five money-raising strategies.
1. Family and Friends
One of the most common, but not always the most effective, ways of raising cash for an entrepreneurial dream is to rely on family and close friends. Step one of this technique involves surveying everyone who might be a good candidate for investing in the new enterprise. Avoid coercing family members and friends who show the least bit of resistance to the idea. Instead, focus on a handful of individuals who have the means and motivation to back a potentially profitable project.
2. Savings and Bootstrapping
The lucky few can rely on their own financial strength, in the form of savings, to get off the ground. After that, they use the first dollar of profit to keep the ship afloat via a method called bootstrapping. Avoid using cash advances from credit cards or mortgaging a home to fund a new business. However, bootstrapping and self-funding are popular among those who can’t get financial loans.
3. Bank Loans
Bank loans have many advantages and few drawbacks. Not only can they help borrowers build solid credit scores, but they also offer commonsense terms and are widely available, even to folks with not-so-perfect credit. While traditional bank business loans can be complex, there are other advantages to using this kind of funding, like the chance to establish a relationship with a stable bank and the ability to increase borrowing limits as the business expands.
4. Angel Investors
Angel investors might be hard to find, but those lucky enough to find one can get a company started quickly and easily. Search angel investor websites and forums to make a list of potential contacts, and then pitch each one with a detailed inquiry letter. You can even reach out to colleagues and other professional relationships you have to see if anyone would be interested in being an angel investor.
5. Crowdfunding
Crowdfunding is not always as simple as entrepreneurs expect, even though the niche has been growing fast. To get funded this way, create a detailed business plan, a great video pitch, and be ready to post prospective financial statements on your crowdfunding page.
The Big Picture
While no single method of the five listed above is superior to the rest, obtaining a traditional bank loan should be at or near the top of everyone’s list, primarily because it helps owners establish business credit and comes with reasonable interest rates. Finding angels can be next to impossible in volatile economic times, and the other methods rely more on good fortune.
