Whether we’re discussing a million dollar idea or something that is as low key as a local business, there is a common fear lingering between all start-up founders — lack of funding. After all, starting something from scratch while still having enough money to actually make ends meet becomes a significant issue. And building a startup towards success requires a lot of funding, especially since — in the beginning — very few startups are at all profitable. So what should one do in order to fund a startup business?
There are different approaches to consider such as keeping your day job, getting another part time job or borrowing money from friends or family. But the truth is, these solutions might not be available for most founders. Therefore it becomes relevant to discuss solutions that actually work, and have a broader audience. Here is an overview of the four main ways to fund a startup.
1. Unsecured Financing
In order to fund a startup business using unsecured financing, one has to understand that while there might be significant advantages, the concept of an unsecured bank line or credit card can become a serious issue if the business itself can barely stand on its own two feet 6 months or one year after launch. If the borrower doesn’t have any assets to act as collateral (securitization) then the bank providing the unsecured financing has nothing to at least sell-off to offset its losses in case of default. The only thing “securing” unsecured business financing is the guarantee of the borrower (business owner). This is why the personal credit worthiness of the owner(s) plays such a major role in funding a startup business. Prior to 2009 people were leveraging home equity with HELOC’s and 2nd mortgages to fund their new ventures. We all know things have drastically changed since then, and unsecured credit lines are now the most common means by which entrepreneurs are funding their startup businesses. Business Finance Store has some very unique programs for startups that leverage multiple forms of unsecured financing, and yes, personal credit is still a major factor but we also have a credit partner program to make startup funding accessible to entrepreneurs with credit challenges.
2. Term Loans
Term loans are like fueling your car until the next stop – for example, a business may consider a term loan in order to get their monthly operations together. At the end of the month a new process is started with the same purpose in mind. With a floating interest rate and a fixed repayment schedule, term loans are useful when there is some sort of predictability within the company’s development. SBA-backed business loans are structured as term loans and issued by participating banks. Even though this program is on the rise again and there are term loans available for funding a startup business, it is the less available solution of the four because the qualifying definitions are very narrow. Specifically, in the case of a true startup, the only terms loans available are for the purpose of purchasing an SBA-approved franchise. If your situation meets this definition then you’ll definitely want to explore this option. The term “startup” has a different meaning to different entrepreneurs. You might simply consider yourself a starup because your business is less than two years old. In this case, if your “startup” has been generating revenue for at least six months, then Business Finance Store has an ACH-based term loan solution for you.
3. Lease Financing
As you may have gathered by now, conventional bank financing is still a very elusive option for startup businesses. But this is where the third viable option for funding a startup business comes in – lease financing. While most startup owners bang their heads against the wall in their attempt to find a bank that will finance them, they forget that there are a lot of leasing companies out there who are willing to help them out. All sorts of equipment can be acquired through lease financing, making it an incredibly viable option. And because the equipment being financed acts as built-in security for the bank/lessor, it is much easier to qualify for. In order to successfully fund a startup business you need to take a step back and think a little outside the box. Apart from cash to pay employees, do an inventory of what is needed to get your business off the ground. What could be bundled up and leased? Software, computers, hardware, furnishings, infrastructure, marketing collateral, ovens, vehicles, tools, etc. The list goes on, and if you get creative you’ll be surprised just how effectively you can equip and empower your startup venture with lease financing. We can help!
4. Crowdfunding – Private Investment
Equity crowdfunding or hyper funding is basically a way of describing collective financial effort. A number of individuals network and pool their money in order to support ideas that arise. And startups are the primary outlet for these crowdfunding efforts. The point behind it is to get as many people involved in your cause as possible — convince them that you have a million dollar idea — and that it’s worth taking the risk and investing their money. And when it’s a collective, human effort, things are a bit different than when dealing with banks and leasing companies.
Business Finance Store has one of the best track records in the industry for getting startups funded, but we still encourage you to do your research before working with any service provider. When it comes to successfully starting a business, education is critical. There is always something more you can learn. That being said, a great resource is Steve Blank’s Udacity web series How To Build a Startup.
If you’d like to learn more about our programs click here now.