How to Fund a Startup: 6 Straightforward Options for Beginners

Starting a business can be both an exciting and nerve-racking time in your life.

On one hand, you’re excited about the opportunity to be your own boss and possibly earn an amazing living doing something you love. On the other hand, you’re trying not to buckle under the pressure of knowing the first few years of a startup are the hardest and most new businesses fail.

As you try to balance the excitement of the pros with the fear of the cons, you’ll probably focus on what you can do to avoid becoming like most startups. And that’s actually a savvy move on your part as an entrepreneur.

If you’re being the savoy businessperson that we know you are, then allow us to help you in your research. Did you know that 29% of the entrepreneurs with failed startups report that their business failed because of a lack of funding?

With that figure in mind, we’ve created a great list of options on how to fund a startup. So keep reading.

1. Flipping the Bill Yourself

Again, some people start their own business because they truly want to be their own boss and report to absolutely no one. With a strong desire for independence, they look to fund their business on their own. If your desire for independence is also a very strong one, then this may be an option for you.

Now this option will require you to start saving a little more and spending a little less. It also may require that get another job to help you pay for your dreams.

Push comes to shove you may even have to postpone your startup dreams temporarily while you work on building enough capital to pay for it if you choose this method.

2. Seeking out Investors

If you don’t mind foregoing some of your independence, then seeking out an investor(s) is a pretty solid opportunity for you. It allows you to raise funding while taking some of the pressure off of you to do it all on your own.

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There are three main types of investor groups:

Venture Capitalists

These are usually experienced investors who are looking to spend some money on great business ideas to make a windfall of their own.

Personal Investors

These can be friends or family members. Or these can be a friend of a friend.

 Angel Investors

Angel investors are similar to venture capitalists in that both groups are looking to invest in a promising business. However, angel investors may not necessarily seek part ownership in your business, but rather desire you pay them back with interest.

3. Taking out Loans

Taking out loans can be a quicker way of securing funding for your business, and in many respects, you’ll maintain your independence without having to give up equity in your startup. However, some loans require you put up everything you own as collateral and pay a hefty interest rate.

There are few sources you can seek out for a loan. Most commonly when a person thinks of getting a loan, he thinks of the banking industry. However, banks usually have strict loan application guidelines.  

We should point out here, that if you opt to take out a loan from a financial institution, you have the option of taking out a business loan or a personal loan. The latter of which is easier to attain. For more information on the best personal loans to consider if trying to acquire this type of funding, visit our friends at Bonsai Finance.

Also, Uncle Sam is a loaning source. There are a few different loans the government offers to help budding entrepreneurs.

Speaking of the government, the federal government also offers several grants for aspiring businessmen and women. And who doesn’t like “free” money? These grants are often overlooked as a funding option, but they’re available.

4. Getting Crowdfunding

This is definitely a popular choice among millennials. With crowdfunding, you simply explain what your business is and what your fundraising goals are, and you open yourself up to a world of generous individual donors.  

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The most popular crowdfunding sites are Kickstarter, GoFundMe, and Indiegogo. However, keep in mind there are a host of other crowdfunding resources you should feel free to try.

5. Asking Family and Friends

As already briefly touched on, asking family members and friends is an option for generating some cash for your business. Although, having family members and friends financially tied into your business can be a risky endeavor.

While securing an investment or loan from family or friends may be relatively easier because of your connections with them, the difficulty comes in not blurring your business relationship with your personal relationship if you get into business with a loved one.  

Not every relationship is able to handle the weight of large financial transactions, so be confident in your relationships should you choose this funding option.

6. Applying to Startup Accelerators

Accelerators are short-term programs that are about more than just an investment. If you apply to one of these programs, you’re usually applying to receive investment money, a network of connections, mentors, and a crash business course.

Also, let us prepare you. If you’re admitted into a program, be prepared for an intense experience, and the expectation that you’ll fork over some equity in your company.

However, if you think you could benefit from the business experience of others along with an investment, then this method of funding your startup may be best for you.

How to Fund a Startup: What Are Your Next Steps?

Simply put, the next steps for you entails research and planning. You have to see what options work best for you in terms of where you are in building your startup, and what you’re willing to give up in terms of equity and/or collateral.

Ultimately, the question of how to fund a startup will take on a personal answer for you after you determine what you can do and are comfortable doing.