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How to Fund a Startup

Abhishek Yadav by Abhishek Yadav
February 2, 2021
in Business, Investing
How to Fund a Startup

You might have had what you think is a great idea for a startup in your mind for months or even years. There could just be one big thing stopping you—you don’t have the money.

Creating a viable business does require capital.

Some people may be able to fund a startup when they have access to a cash windfall. For example, you might receive an insurance settlement following a car accident, and then you can use that to build your business.

If you don’t have access to a lot of cash currently, there are still ways to fund a startup, including the following.

Contents

  • 1 Friends and Family
  • 2 Bootstrapping
  • 3 Bank Loans
  • 4 Grants and Contests
  • 5 Credit Cards

Friends and Family

Getting money from friends and family might not be an option for you, depending on your situation. If it is, it can be a good choice as long as you’re very comfortable with the people you’re thinking about asking to fund your business.

You do need to be aware that first, you should get professional legal advice. Everyone involved should get independent advice to ensure you’re all making the right decision.

You also need to be careful because there is the potential that borrowing from friends or family could cause problems in your relationship. By having clear terms, you can reduce this risk.

Bootstrapping

There’s a term called bootstrapping, and this in many ways is one of the lowest-risk ways to fund a startup.

What bootstrapping means is that you’re using your own money to gradually build your business.

You might use your savings, for example, or you might have access to a low-interest credit card.

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Some people will bootstrap their business while they work full-time somewhere else.

The biggest potential risk of bootstrapping is that it might erode your savings, or it could put you in debt.

You can also only grow your business incrementally in many cases. For example, you might be able to fund certain parts of your business, but then you could have to slow things down if you run out of savings.

If you keep your day job and use it as a means of funding your business, things might move along more slowly, but you’re cutting out so much of the risk of having a startup, at least in the early days.

Bank Loans

There are a variety of types of bank loans that can be used to start a business.

One example is a personal business loan. A personal business loan usually means the financial institution extends credit to you based on your personal creditworthiness. When you’re approved, you can then use the funds to build your business.

A personal bank loan can be a faster and easier process than a traditional business loan. For example, it can take weeks or more to secure a traditional business loan. You can secure a personal loan within a few days, on the other hand.

Some banks have small business loans, but these fall into the category of traditional business loans. Banks are very cautious about giving money to small businesses.

You may find that an alternative lender, such as an online bank, is a better option for you because their lending guidelines and criteria aren’t as strict as brick-and-mortar banks.

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Grants and Contests

There are so many grants and contests available to help people build businesses. This is particularly true if your business falls into a particular category or industry, such as technology, or if you’re a minority or woman entrepreneur. Even if you aren’t, there are still grants and contests available that can help you gain access to the funding you need to create a business.

For example, the Small Business Administration often offers small business grants to women, minorities, and veterans.

You can find out more about these opportunities through your local SBA chapter or perhaps the Chamber of Commerce.

The big upside of grants and contests is that you don’t have to pay the money back. The major downside is that these are limited and highly competitive opportunities.

Credit Cards

Finally, credit cards might be a last resort to fund a startup for a lot of people because they have high-interest rates. If you’ve exhausted all other options, however, you might think about it.

If you’re using credit cards to fund a startup, think about a business-specific card. They can help you keep your personal and business finances separate, and they often have perks specifically geared toward business owners.

You can also use business credit cards to build the creditworthiness of your business, rather than only relying on your personal credit the next time you need funding.

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Abhishek Yadav

Abhishek Yadav

Hello, I am Abhishek Yadav, I am an Internet Marketer and a Blogger. along with blogging I also have some Programming and content marketing skills. Connect with me on Twitter @Abhinemm to know more about me :)

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