According to SBA 90% of the startups fail within first two years of the operation. The second common frequent reason due to which most of the startups fail after poor management is lack of funding for startups normal operations and marketing campaigns. In this article we would be discussing tips which you should follow to generate enough funds for your startups.
Decide the Nature and Amount of Funds: – Before searching for funding opportunities you need to evaluate how much and when you would need funds. Whether you need Funds for Long-term or Short-term? How quickly you can pay back your funds? Whether you need entire amount at the start or you want them in small intervals? Whether those funds would be used for company expenses like paying salaries etc or whether those funds would be used in developing assets like real estate.
Select the Type of Financing: – After you have evaluated the funds you would need and its duration now it is time to think about the financing options. Either you can select Debt Financing in which you borrow the money for a specified time frame and set interest rate. The other Financing options is Equity Financing in which investor would take a partial ownership of company in exchange of money.
In Debt Financing, investor doesn’t have any risk and you have to return money whether your startups succeed or not, whereas in case of equity financing if the ventures fail investors would lose all their money. If you don’t want to take any risks and would like equity financing then make sure that you don’t give much control to the investors.
Loans/ Private Lenders: – You can get Loans from banks easily if you have some assets like home which you can give to bank as guarantee. The other popular way of getting funds is private lending and used as alternative when bank says no. Private lenders are ready to take high risks than banks if they see good potential in the startup.
Investors: – Searching investors is not an easy task in current economic times. Prepare a business plan and Start with your Friends and Family if they can invest some money for your startups as they would be the best source possible for both debt or Equity Financing. After that come the Angel investors and Venture Capitalists. Most of the Startups don’t need Venture Capitalists at the initial stage. Structure the deal so that you don’t face any problems at the end.
Grants: – Governments use to offer Grants for specific type of Businesses. Depending on the type of your business you can also apply for Grants. You can contact your local administration office with your startup proposal and see if your business falls in any category where you can get Grants.
Bootstrap: – Bootstrapping is the last option to fund your startups. Bootstrapping means efforts to minimize outside debt in your business. In this strategy you would keep putting all your profits or most of it back in to your business until your business becomes self sustaining.
The article is written by our guest author, Gagandeep Singh. He works as Internet Marketing Executive for Promotional Products Company Fortepromo which help startups to promote their brands.