Spend to Make: 5 Reliable Strategies for Funding Your Startup Business

Business.com / Funding / Last Modified: February 22, 2017

There are many ways to secure much-needed cash and elevate your company to the next level. See whether one of them could be right for you.

There are several ways to secure the much-needed cash and elevate your company to the next level. Let’s see whether one of them could be suitable for your business.

In every line of business, established companies hold a sizeable resource advantage over newcomers, and they are typically able to translate this advantage into an actual edge in the market.

In order to compete, new players must secure at least some initial funding so they can develop products at a faster pace and promote them to customers vigorously.

For example, the founder of Peaden said that the most important moment for his company was when he managed to attract the first round of seed investment.

Of course, this can be accomplished in a variety of ways, depending on the founders’ preference and scope of available channels in the country where the business is founded. Each of the funding sources discussed here has its advantages and downsides, and some could be better suited for companies in a particular industry than to other startups.

However, the diligent approach requires you to consider all alternatives and perhaps try working through more than one channel, at least in the earliest stages of the fundraising process. Here are some basic facts about strategies that give startup companies a realistic chance of stabilizing their financial picture and developing new products and services:

Related Article: Inside Equity Crowdfunding: The Quire Difference

Bank Loans

The most straightforward path to funds leads through a commercial bank and takes for of a classic loan with compounded interest. However, it can be difficult for a new business entity to get a large enough sum since startups typically don’t have a lot of assets and loans to them could be perceived as risky without some kind of collateral.

That means most startups won’t be able to get the money through mainstream banks, but they could still be able to identify a source of small-business loans that might be willing to provide up to $150,000. Here is the list of organizations that specialize in this kind of financing and could provide the initial influx of cash necessary to get the business off the ground.

Startup Incubators/Accelerators

Joining a program designed to boost fundraising efforts can be a very smart move that eventually leads to a breakthrough on the financing front. There are a growing number of startup incubators that specialize in helping smaller companies to collect seed money in the range from $200,000 to $5 million.

These organizations have proven to be very effective, particularly in the technology sector, and they could see their role expanded in the near future. Of course, not every startup accelerator is equally effective, so it would make sense to learn which ones were the best-rated in 2016.

Attracting Angel Investors

The truth is that cash is readily available in huge quantities for those who know how to attract the attention of venture capitalists looking to expand their portfolios. So-called "angel investors" are often ready to get onboard very early before the company has the time to build steady revenue streams but they typically want to acquire equity in return.

Related Article:5 Critical Mistakes to Avoid When Raising Money With Investors

The investors are basically sharing the risks and potential profits with the founders, which could backfire in a big way if the company turns out to be a smashing success. The first investors in Uber only contributed up to $500,000 individually in 2010 and saw their investments yield magnificent returns as company value soared to $68 billion in 2016.

Small-Business Grants

Many national, regional or local governments are known to hand out grants to up-and-coming entrepreneurs and it is worth checking whether you are eligible for this kind of support. Money from this source usually needs to be paid back, but the interest rates and repayment periods are typically far more favorable than with traditional banks.

Additional conditions might also be a part of the deal, i.e. pledging to hire a certain number of new workers over the agreed timeframe or purchasing raw materials from local suppliers. The quality of your business idea is the key to winning grants of this nature, but certain strategic industries might offer additional opportunities for savvy companies capable of anticipating the trends and adjusting their business plans accordingly.

Crowdfunding on the Internet

Online recruitment of small investors is another powerful tool that has recently gained a lot of steam and could become even more important going forward. This channel is open to literally anyone. Websites like IndyGoGo or KickStarter are extremely popular and are used to fundraise for projects of various sizes.

Related Article:9 Ways the New SEC Crowdfunding Rules Will Affect Your Business

Most individual contributions will be small, but taken together they can be sufficient to provide a lifeline to a freshly hatched idea. If the project turns out to be successful, business owners can switch to more robust sources to support sustainable long-term growth.

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