A unique idea is only the start of a new business. However, it is not enough to have a plan in mind. One needs to work hard and find a way to finance it. Rather than expecting a sudden infusion of cash, one needs to work hard towards raising funds for their venture, either through traditional or non-traditional means.
5 ways to fund your business
Government grants: Not all kinds of businesses can opt for this option. Government grants are best suited to those organizations that are unique and offer some service that would benefit the government and the country at large. For example, the government would provide grants for new technology to improve public safety, reduce pollution, and so on. While such grants are beneficial, it may be hard for people to get them. While one applies for national grants, they should also send in applications for smaller and local or regional grants in their city or state.
Peer-to-peer lending (P2PL): It is a comparatively new style of getting funds, and mostly, it is for people who have a limited credit history. Their ideal target audience would be young people who have just started working. Young people without an adequate credit history are in a tricky situation where they need money to develop their financial portfolio, but they need a financial portfolio to get a loan. P2PL aims to solve this problem. Organizations like Upstart and Lending Club support individual investors and fund their loans. Instead of considering traditional parameters like credit scores, they look at the applicant’s educational background and scores as well as their employability.
Crowdfunding: This alternative way of getting funds has generated a lot of buzz recently. Crowdfunding website like Kickstarter and Indiegogo have provided a lot of people with funds to spend on projects and goods that matter to them. Rather than going after one big loan, the borrower asks a large number of people to provide small sums of money.
A great example of the efficiency of crowdfunding is the restoration of Reading Rainbow. LeVar Burton went to supporters of the program to ask for funds due to the studios wanting to take over the artistic power for the show. Due to the show’s reputation, the small contributions ultimately totaled up to 5.4 million dollars, nearly five and a half times more than the primary goal.
Angel investors: Suppose one requires a $500,000 loan to get their discovery into the production stage. They could try to locate an angel investor who would be amenable to loan the money at a particular interest rate. In return, the investor gets shares to a part of the company.
Microlending: One method to circumvent the long-term implications of a loan from an angel investor is through microlending. Microlenders will loan a sum of not more than $20,000 at a time. They do this for various purposes. Firstly, there is a lower risk due to the moderate interest rates of the loan. Secondly, according to the Time magazine, companies that get microloans are two times more likely to survive as compared to the average rate. Moreover, these companies also tend to pay back the loans at the same rate as businesses that get conventional loans.
Thus, a small business owner can opt for any of these ways to fund their venture according to their requirements.