Top 10 Financing Choices To Raise Capital for Startup
Ezra Cabrera | September 2, 2019
Every new startup needs adequate funding to purchase fixed assets, develop products, pay employees, to cover current expenses, etc. Typically, many new entrepreneurs believe that obtaining traditional bank loans are the prime options for raising capital. However, this is not a case in the current business environment. If you are looking for creative methods in raising capital for startup, then review the following:
#1: Car Title Loans
Car title loans, also called title loans, are the form of secured loans when borrowers can make use of their auto titles as security/collateral to acquire a loan from the lenders. Precisely, a borrower uses their car title to gain loan for startup amount quickly. So if you are looking to collect funds and thinking of how to finance your startup, this type of loaning against a personal asset is well-suited to serve your financing needs to some extent. You must know that under a title loan, you are allowed to freely use your car, you just have to submit the vehicle ownership document. This way, the loan provider can safeguard against delayed payments from your side.
#2: Bootstrapping
Bootstrapping, also known as self-funding, is an effective choice to fund your startup. The concept of bootstrapping favors the ideology of using your savings, emergency funds, and personal assets to finance a plan. Understandably, it is challenging for first-time entrepreneurs to raise capital from outside sources. However, bootstrapping recommends you to pitch your business idea to your family, friends, and close relatives to collect funds for your startup. It is an easy method to quickly raise funds with fewer compliances or formalities.
#3: Crowdfunding
In current times, crowdfunding is one of the most employed strategies in raising capital for startup businesses. It is a practice to raise capital for the business by collecting small amounts of money from a number of individuals. Crowdsourcing is widely accepted to financially support the ideas of new entrepreneurs. You will have to put a meta description of your startup, overall goals, profit-making strategies, and funding needs to pitch your startup plan to the consumers. So if you have a positive approach on how to raise capital for a startup business, they will surely give money.
#4: Angel Investors
Perhaps, it is one of the ideal options to attract angel investors to adequately raise capital for your startup. Descriptively, angel investors are the people who prefer to invest in new businesses or financially support startups for great rewards. Have you ever heard that common saying, “high risks mean high returns?” Well, angel investors think the same way. They believe that startups and small businesses are risky investments and can potentially offer higher rewards in the future because they are at their growing phase. So don’t be afraid of how to finance your startup and request angel investors to finance your business. They will surely help you if they have spare cash.
#5: Microloans
If you are unable to secure bank loans due to weak credit history, no collateral, or steady employment, then don’t you worry! You still have suitable options. You can feasibly apply for a microloan. It is a small amount loan typically issued by a number of individuals rather than commercial banks, financial lenders, and credit unions. The micro-lenders offer small-sized loans that require less documentation. They are more flexible loan for startup in terms of interest costs, repayment methods, payment tenure, etc. Your lender might charge a bit higher interest rate, but a microloan is a good option to quickly raise funds for purchasing new equipment.
#6: IRA Financing
Most business owners are thoughtful on how to raise capital for a startup business and IRA Financing is one of the great options to consider. IRA, which is short for Investment Retirement Account Funds, is undoubtedly the most accessible funding choice to raise funds for your startup. It is also known as a 401 (k) loan. If you are financially incapable of utilizing your own self-directed resources, then you can request others to loan you funds. They will be willing to use their self-directed funds to support your startup if they happen to have faith in your cause.
#7: Incubator & Accelerator Programs
Next, you have the option to acquire financial and non-financial support from the incubators and accelerators programs. If you have an early-stage business with restricted funds but a strong vision, then you must look for such programs in major cities to pitch your idea to business gurus. Incubators provide nurturing assistance to walk your startup, whereas, accelerators help you to go for a giant leap. Generally, a program consists of 6 to 8 months of training to make reliable connections with investors, entrepreneurs, and other fellow startups. The more you build connections in less time, the easier it will be to raise capital for your business plan.
#8: Venture Capital
You can seek the financial assistance of venture capital firms by pitching your startup idea. If the venture capitalists (VCs) like your vision, they will be willing to make investments in exchange for shares/equity in your new business. Since they are the field experts, they can also guide you and offer expertise to smoothly run a new business. They care for their investments and returns so they would ensure the survival of your startup in the highly-competitive industrial environment. However, it is quite challenging to convince VCs to fund your startup because they firmly believe in fast-growing, low risky, and stable business plans.
#9: Grants
You can also request for grants from the government and public institutions. It is a good and secure financing choice to acquire government-related grants. Primarily, the goal of such grants is to support new ideas and ensure the growth of startup businesses. Currently, both long-term and short-term schemes are available to offer quick financial support. If you are thinking to fuel your startup with government programs, then check on the available local grants. Once your startup has complied with eligibility criteria, the government initiatives will surely help you with your business plan.
#10: Factoring
Lastly, you can consider factoring accounts receivables or invoice advances. Typically, this funding approach is best-suited for newly started businesses. Factoring is relatable to PO financing, but it is applicable to the amount not yet collected by the debtors/customers. Factoring is recommended to high-volume startups to immediately receive cash on their sales. So if you think that your startup falls under the exact head, then you don’t have to wait for like 30 to 60 days to collect receivables. You can acquire funding on accounts receivables.
When it comes to running a startup, business owners need all the help they can get. Having quick access to working capital through these financing options can significantly improve your chances of running a successful and profitable business.
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