Categories: Business

How to Fund Your Business Idea

As satisfying as bringing your business idea to fruition can be, the process comes at a cost.

One of the biggest decisions you’ll make ahead of launching a small business is how to pay for the associated start-up costs. The first, and largest, determining factor in how much it will cost to finance your small company is its business structure. For instance, getting a brick-and-mortar retail store off the ground will typically cost much more than launching an ecommerce website. This is why it’s very difficult to pin down an “average” amount for how much it costs to launch a business.

Typically, you can expect to require hundreds or thousands of dollars to cover costs like:

  • Licensing
  • Commercial/storage space
  • Inventory
  • Marketing
  • Accounting
  • Insurance
  • Employee wages
  • Website expenses

What are your options on how to fund your business idea? Here are five of the top options.

 Bootstrap Your Small Business

Bootstrapping a business means launching and growing it with minimal capital. Rather than depending on an outside funding source, this strategy has a do-it-yourself ethos. This tactic often involves you, the entrepreneur, saving up funds ahead of time and building out your company over time — continually putting revenue back into the company to help it keep growing.

Bootstrapping involves asking, “What does this business need to run right now?” This may involve forgoing “the extras” in favor of making only bare-bones investments until the revenue stream can support expansion.

 Apply for Small Business Loans

Another option is working with the bank. This approach is particularly effective if you have strong credit — otherwise the loans may carry a high interest rate, or you may have trouble getting approved for the capital you seek.

The U.S. Small Business Administration serves as a hub of helpful information about different types of loans for small businesses.If you’re unable to qualify for traditional business loans, microfinancing might be more up your alley.

 Use Crowdfunding

As Yahoo Small Business writes, another way to finance a small business is to crowdfund. Platforms like Kickstarter, Indiegogo and GoFundMe are popular choices here. These platforms allow you to share your story and your mission, as well as set up rewards for investors if you are using products or services as an incentive.

 Apply for a Grant

NerdWallet calls small-business grants “free money.” Sounds pretty appealing when you put it like that, huh? Grants for small businesses exist at the local, state and national levels. It’s mostly a matter of searching for available grants and then determining whether you meet the criteria. If you do, it’s worth applying. There are government-backed business grants available as well as private, corporate options.

 Find an Angel Investor

If you’ve ever seen the TV show Shark Tank, then you have seen what it looks like to secure an angel investment or venture capital for your start-up — albeit in the most dramatic fashion possible. Angel investors are people who believe in your business who are willing to give financial support to help your operation get off the ground.

Securing investment requires making a strong pitch, so make sure you have developed your idea and written up a strong business plan before approaching anyone for funds. Angel investors typically want to see every detail laid out — like concrete business objectives, industry/competitor research, financial projections and unique selling proposition.

Turning your business idea into reality will require some cold, hard cash. Thankfully there are a handful of routes to take to secure the funds you need. Which option is right for you depends on the nature of your business and how much money you need, among other factors.

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