9 Ways to Fund Your Business

Photo by Emil Kalibradov on Unsplash

Starting a business is no doubt an exciting and fulfilling decision…but it needs money. Because at some point in your business journey you’ll have to pay for things like websites, tools, products, marketing and much more. So the big question becomes, how do you get that money?

If you’ve been asking yourself that question, you’d be happy to know that there are several realistic ways to finance your business as a new entrepreneur. In this guide, we’ll walk through nine practical ways to fund your business, so you can make informed decisions and continue to build that busines you love.

1. Bootstrapping

This is the “do it yourself” approach to funding your business. Bootstrapping means using your own personal savings, income from a day job, even revenue from early sales to fund your business growth without any external help. You don’t use investors or loans, just you.

And you’re not alone if you choose this route. Studies show that over 78% of small businesses are bootstrapped at some point in their journey. It’s actually the most common way to start, and it’s also the way Edventures is and has been funded so far.

The upside of bootstrapping is that you maintain complete control. Every decision you make in the business is yours and you don’t owe anyone equity or interest payments. But the downside is that growth can be slower and there’s personal financial risk involved. You’re also limited by how much you personally have to invest.

2. Friends and family

This method of financing your business will mean you asking people who already know and trust you to invest in your vision. Your uncle, your sibling, best friend from college or parents might become your first investors.

The beauty here is that these people already believe in you personally. They’re often more flexible with terms than a bank would be if you were getting the loan from them and the application process is basically a conversation over coffee most times. But with this method you have to tread carefully. Mixing money with personal relationships can get messy if things don’t go as planned. Yes, they’re family but always put agreements in writing, even if it feels awkward. Putting things in writing does not mean that you don’t trust each other. Rather it will help both parties manage expectations.

3. Angel investors

Angel investors are typically wealthier individuals who invest their own money in early-stage companies in exchange for equity in the business. Most times they are experienced business people who’ve already had their own success and now want to help (and profit from) the next generation of entrepreneurs.

Beyond just money, many angel investors bring valuable expertise and connections to the table that can be very helpful to you. They’ve been where you are and can help you avoid common pitfalls. The catch with this option is that you’ll need a solid business plan and pitch to attract them, which can take a lot of time and energy. Angel investors are looking for high-growth potential, but are more open to investing in businesses that align with their personal interests, which can make it easier to connect with angels than it can with venture capitalists (VCs, which we’ll tell more about later in this blog). And yes, you’ll be giving up a piece of your company in exchange for the value they bring.

4. Small business loans

Traditional bank loans are time-tested funding methods. In this case, you borrow a specific amount, agree to an interest rate and pay it back over time. But, to get a small business loan, you’ll need decent credit, a solid business plan and often times, some form of personal collateral they can bank on. Banks want to see that you’ve thought everything through and have a realistic path to repayment.

5. Grants

You can also start your business with free money. Yes, that exists too. Sometimes government agencies or corporations offer grants to businesses that meet specific criteria that build and create something that aligns with their focus. Unlike loans, you don’t have to pay grants back.

Because of the desirability of this option, the competition can be very fierce, though. You’ll need to invest time in researching available (and suitable) grants for which your business fits the criteria and then writing compelling applications that can get you selected.

Each grant has its own requirements and many are targeted toward specific demographics, for example women, minorities, veterans or industries like education, green energy, and healthcare. To find these grants you can conduct simple searches on Google or visit sites that document them.

6. Presale

Preselling your product before it’s officially launched is a clever way to get startup capital from customers. Presales involve selling your product or service before it’s fully ready to generate revenue to run the business. You can collect payments upfront, then use that revenue to actually build what you’ve promised your customers.

This is also one of the approaches used to validate your idea and it provides working capital without debt or equity dilution. You can do presales directly through your own website or network or even use crowdfunding platforms though they’re quite harder to manage. Just make sure you can actually deliver on your promises and within the timeframe you’ve committed to.

7. Crowdfunding

Crowdfunding means raising money from a large number of people who each contribute a relatively small amount toward a cause. This is usually done via the internet.

There are generally two types. There’s the reward-based crowdfunding where backers get your product or perks from the business, and equity crowdfunding where backers get a small stake in your company. Sometimes, people simply give because they genuinely believe in your business and your vision.

However, running a crowdfunding campaign takes serious effort. You’ll need a lot of things like great visuals, a compelling story, a promotion strategy to stand out, and a lot of time is spent on preparing the campaign.

8. Venture capital (VC)

Venture capital firms (VCs) are professional investors looking for high-growth startups to invest in. They invest large sums of money into startups in exchange for equity in the startup.

VCs typically get involved after you’ve proven some level of traction as they want to see that your idea works and has massive scaling potential, potentially becoming the next unicorn.

If you go this route, you have to plan and prepare to grow fast. This is because VCs expect significant returns on their investment, which means aggressive growth targets and potentially giving up substantial control of the business. You’ll also likely go through multiple funding rounds (Series A, B, C and so on) as your company scales.

9. Strategic partnerships

Sometimes the best funding doesn’t look like traditional funding at all. Partnerships can be a source of funding for your new business. You can establish strategic partnerships with established companies that can provide capital or resources and opportunities that will fuel your growth.

Partnerships here might look like a larger company investing in your business or a partnership where they provide resources like technology or distribution in exchange for exclusive access to your product. The benefit is that you often get more than just money, you get things like expertise, infrastructure and sometimes credibility. The potential downside is that these partnerships can come with strings attached that limit your flexibility as a business.

So what’s the best way to finance your business?

There are many options when it comes to funding your business as an entrepreneur. We have to admit that there’s no single “best” way for everyone. Instead, think of it like this, the right funding strategy for your business will depend on your specific situation, your industry, growth goals, how much you’re willing to risk and of course how possible it is for you to successfully get that funding option.

Many successful entrepreneurs actually use a combination of these methods at different stages of their business growth. You might bootstrap initially, then bring in friends and family for your first major expansion and eventually pursue angel investors or VC funding as you scale.

Whatever route you choose, just make sure you fully understand the terms and implications of that option. To be sure, talk to other entrepreneurs who’ve been there and/or consult with a financial advisor or attorney and don’t rush into any agreement just because you’re eager to get started. Your funding strategy can shape your entire business trajectory, so take the time to choose wisely.

Need to discuss this further? Create an Edventures account today

Starting a business comes with a lot of decisions, and funding is one of the most important ones you’ll make early on. If you’re looking for guidance and a supportive space to learn and grow, create a free Edventures account and start building your business with clarity and confidence.