How to Get Funding for Your Startup

One of the most daunting tasks as an entrepreneur is figuring out what startup funding method you will choose, and even if you decide to use your personal savings, what if you run out of money?

Banks can be very picky regarding which businesses they will lend to, and many entrepreneurs may struggle to meet their requirements. On the other hand, approaching investors may not be ideal if you wish to remain in control of your business.

It is best to research all your options when it comes to finding the right startup capital option for your business, so read on to uncover all your options and the pros and cons of each.

Types of startup funding

Any method you choose to launch your business will fall into one of three categories: self-funding, investors, or loans.

• Self-funding: With this option, you are limited to your personal savings or money you can gather from friends or family to launch your business. While it is a good option if you wish to retain complete control over your business and avoid paying interest charges, you risk losing your savings should your business fail.
  
  
• Investors: This funding option requires you to prove to investors that your business has high growth potential, so you must have a plan to present to them and be prepared to undergo vigorous processes to prove your business is worth the investment. Although you will avoid monthly payments going this route, you will have to give up partial ownership of your business. Some investors may require you to give them a seat on the board of directors, meaning they would have a say in the decisions you make for your business.
  
  
• Loans: Traditional loans allow you to stay in control and do not require you to give up ownership of your company, but you will have to begin repaying the loan immediately. Banks often have strict requirements to receive startup capital, which many do not meet.

Within each of these options, there are additional choices.

1. SBA Microloan

The Small Business Administration (SBA) offers businesses various loan programs,  such as the SBA Microloan, being steered toward startups.

According to the SBA website, the SBA Microloan will provide up to $50,000 for startup capital, but the average amount for this loan is $13,000.

While this loan can offer startup capital to businesses that traditional lenders may not lend to, and you can use them for a wide variety of business expenses, they tend to come with strict spending requirements. It can take a while to get approved and receive your funds, have collateral requirements, and they can be challenging to qualify for.

2. Venture Capital

A venture capitalist is a type of investor who will give a startup business capital in exchange for equity in the company. They tend to invest only in companies with high growth potential since they lose their money entirely if the business fails.

They can be suitable for new business owners since the investors have something to lose if the business fails, so they can act as a good consultant and offer guidance to help you succeed. Also, they may have connections within the business community that could benefit new business owners.

However, you could lose control of your business since they often require a hefty percentage of ownership of the company, with some being more than 50%. In this scenario, you could quickly lose the ability to make management decisions.

3. Small business grants

A small business grant is given to a person from the government, private businesses, or non-profit organizations that have gathered funds to gift to a new business owner. The key is finding one you qualify for, but competition is high even when you find a relevant grant option since it is one of the few options that do not require any repayment.

Most of these grants have stringent requirements, and some government grants require the business to repay the government in information rather than money. For instance, if research is involved in your business, you may be required to disclose your findings to the government for them to use as they see fit.

4. Crowdfunding

Through crowdfunding, you can raise funds for your business through an online campaign, but to receive donations, you usually have to offer an incentive to make it worthwhile. Many incentivize donations with a small share of the company, which can appeal to investors who cannot invest tens of thousands, but instead, maybe a couple of hundred dollars in a company.

This method has a few drawbacks, including that you can severely damage your reputation if your business fails, but even worse, you risk being robbed of your idea or product. Without a patent or copyright, anyone can go onto a crowdfunding site, see your idea, and claim it as their own.

5. Business credit cards

Business credit cards are a great option to avoid many disadvantages that come with a traditional loan or investor, but only when used responsibly. With introductory 0% interest rates for upwards of 18 months, business credit cards allow you to avoid the interest rates tied to traditional loans, remain in control of your business, and do not require any assets as collateral.

A huge benefit is that there is no cap on how much funding you could receive, as long as you use the amount you have been given, show excellent payment history, and your personal credit remains in good standing. With this type of funding, since you are not giving up equity or putting up an asset as collateral, the banks use your personal credit to determine your creditworthiness – but do not worry because the business credit does not report or appear on your personal credit.

In the past, a significant drawback was that once the 0% introductory offer ran out, you would be stuck paying interest on the remaining balance. However, Fund&Grow found a way to prolong that 0% interest rate even after the initial offer has expired through credit stacking. As a result, we can keep startups at 0% interest for years after the initial offer through our done-for-you program, leaving virtually no drawbacks of this funding method.

There was a time when choosing the proper funding method required you to give up something and decide what was most important to you – the amount of funding, interest rate, or retaining complete control of your business. However, Fund&Grow has changed that to give you up to $250,000 in business credit at 0% interest without requiring you to give up anything, making it the most effective and affordable startup capital available today.