What are the best practices for raising money for a startup? Originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
Thank you for your question. You are not alone; startup money is often perceived as a barrier for individuals looking to start or grow their new business. If you’re looking to start a business but you don’t have a lot of money saved up, good news is there are many different funding options.
Here are the most popular sources of business start-up money.
This may be daunting at first glance, but it’s the most popular source of funds to start a business. Many people get the start-up money they need by mortgaging or remortgaging their homes, or selling property or possessions – even those who do succeed in getting a start-up business loan.
Lending institutions and investors usually expect the person starting a business to make a personal financial commitment.
2) Family and Friends
The second most popular source of money to start a business is family and friends who are often willing to provide a start-up loan or even sometimes make an outright gift to help you get your new enterprise off the ground. After all, they’re likely to be already “pre-sold” on the value of your business idea to some degree being people who want the best for you.
3) A Line of Credit
While not recommended as a sole source of start-up money, a line of credit is essential for the start-up phase. No matter how careful and detailed you’ve been in preparing your business plan, there are always unexpected expenses and expenses that you’ve underestimated.
Hopefully, you’ve already prepared the way to access this source of funds before you decided to start a business by having established a relationship with your local bank manager and by ensuring that your credit rating is in good shape.
No bank is going to give a line of credit to someone unknown to them, especially if that person doesn’t have a credit rating established.
4) A Business Loan from A Bank
I’m using the term “bank” to refer to traditional lending institutions such as banks and Credit Unions. It’s actually easier than ever to get a business loan from these traditional sources, as more people than ever have been successfully starting small businesses and the big banks have more interest in small businesses than they used to.
That said, you can’t just walk in, tell a loans manager how much money you want, and expect to walk out with it. Applying for any business loan is a process that you need to prepare for.
5) A Business Loan from A Business-Related or Government Sponsored Organization
There are many organizations whose purpose is to promote economic development or provide assistance to help particular types of people succeed in business. Often (but not always) this assistance includes financial support, such as start-up loans.
6) Finding Investors
Angel investors, venture capitalists, or private lenders all may be excellent funding sources for your new business. While it’s certainly more difficult in most cases to attract investors to a start-up rather than to an established venture, it’s not impossible if you have the right business idea at the right time backed by an impressive business plan.
7) Government Grant Programs
While this is often touted as a great source of money to start a business, it’s not, because most start-ups simply don’t qualify.
Those planning to start up certain types of businesses will have a much easier time finding government grant programs that may provide the needed funds. For example, generating efficient, renewable energy is a priority of the federal government, so businesses involving Cogeneration (using one fuel to simultaneously produce heat and electricity) or renewable energy technologies will find more government grant opportunities than others.