- A lack of startup funds poses a serious risk to businesses looking to avoid cash flow problems at launch.
- Competitions and crowdfunding provide low-risk opportunities to build capital.
- Credit card companies provide startup funding perks such as low-APR business cards and merchant financing.
New startups are rarely easy to finance. Unless you're independently wealthy or able to completely fund your venture by yourself, creativity and resourcefulness are truly the keys to success in financing your new startup.
Let's assume you've already been turned down for a small business loan, and you don't qualify for a grant. Now the question is, "How can my startup get the financing it needs to launch successfully?" Here are five creative financing ideas for cash-strapped startups wanting to take their idea from vision to reality.
1. Crowdfunding
While it's hardly a new idea, the first thing to consider is crowdfunding. Before you jump the gun and start building your Kickstarter or Indiegogo campaign, consider these things to decide if crowdfunding is right for your startup.
Have you figured out exactly how much funding you need to launch successfully? If not, go back to the drawing board and create some solid financial plans and projections so your crowdfunding efforts don't fall short.
Are you willing to share your intellectual property with the world? In order to crowdfund successfully, you'll need to share certain details of your campaign with potential donors. This exposes your startup idea, product, or project to countless people who may or may not try to launch similar ideas of their own.
Do you have a clear message and marketing strategy? Successful crowdfunding campaigns are all about perfecting the message and having a solid marketing strategy in place. If you don't know the first thing about marketing, you'll either need to hire someone who does or consider a different financing option.
2. Startup competitions
The startup landscape is competitive. But if you have a truly innovative idea, coupled with a solid business and marketing plan, it's worth a shot to enter a startup competition. Aside from receiving funding if you win, you'll reap the benefits of exposure and feedback by entering some of these competitions. Winning a startup competition is no guarantee that your new venture will be successful, but it's a potential way to get your foot in the door and your business off the ground.
3. Alternative financing
Although financial experts may cringe at some alternative lending options, plenty of successful startups have been financed with alternative lenders. Peer-to-peer lending, microfinancing and even short-term loans could be viable options for some startups. Microloans are lending options from individuals instead of financial institutions.
According to Canadian bank BDC, business accelerators are a positive option for those looking to secure funding for startups. The programs provide mentorship, support services, and investment connections until a business is deemed self-sufficient.
4. Investment from friends and family
Admittedly, this may not be an option for everyone. But if you have family, friends or business colleagues with deep pockets, this is something to consider and might be a better option than seeking an unknown investor. One poll indicates that 5% of the U.S. public has provided funding for someone starting a business, so it's not as far-fetched as you may think.
If you go this route, be sure to write down your pitch in advance, consider what they'll receive in return for their investment (standard interest on the amount borrowed, for example, or equity in the company), and to set the right expectations for when they'll be repaid.
5. Investors
No startup financing advice would be complete without mentioning outside investors. Whether you're after angel investors or venture capitalists, there are a few things you'll need to know to improve your odds before you pitch.
Perfect your story and your solution. Remember, facts tell and stories sell. It's great (and necessary) for you to have a solid business plan and financial projections, but that alone isn't enough to sway most investors. Tell your story in a compelling way, and be very concise about how your idea solves a problem.
Show that you've done your research. Target market and competitor research is key to show investors you've done your homework and that you understand the business landscape. This is equally important as your financial projections, because without the proper understanding of the market, your financial projections are truly just imaginary numbers.
One popular method for nailing down an investor pitch is to follow the Lean Canvas model for creating a business plan. It's clear and concise, covering all of the main areas potential investors will ask you about.
6. Credit cards
Business credit cards are a good way to control spending for startups. Look for extended promotional periods with 0% APR financing. Cashback rewards are ideal for most business types. Merchant financing is a type of credit card opportunity for businesses to receive cash advances through their processing system.
The sad reality is that 9 out of 10 small businesses fail due to a cash flow problem. Even if you've already launched your business, you might not be out of the woods yet when it comes to funding. Don't let your startup become another statistic. By getting a little creative when it comes to your funding options, you just might beat the odds.