6 Sources of business financing for a start-up

“Money is a terrible master but an excellent servant.”

Every entrepreneur lives by one mantra. “Never put all the eggs in the same basket.” In this post-covid world, the success of a business is never guaranteed. We have seen business empires crumbling down to ashes within months. Many case studies on corporate finance assignments help us realize exactly how challenging the business scenario is.

This is why diversifying financing sources benefits the owner to cater to their specific requirements. Banks will always be there to provide you with loans. Apart from that, there are numerous avenues of generating financing for the business start-up. Each option comes with its own set of benefits and disadvantages. Let us get an overview of the sources barring banks we can explore for start-up financing.

  1. Personal Investment in Business

Jumping in to do a business without having a single penny of your own is never the right step. Always try to be the first investor of your business. Your own money, be it cash or any collateral against your assets, gives you a sense of commitment. “My own money” is a significant driving factor for an entrepreneur to be sincere and one hundred percent focused on the project. When your funds are already invested in the business, every risk you take needs to be calculated.

  1. Natural Market

Your parents, life-partner, brother or sister, close friends are the ones you can always count upon. Their support is another way of getting financial help while starting a business. They will always want your success, and the probabilities are high that they will agree to fund your start-up.

Such capitals get termed as “patient capital”, implying that the money will be returned once the profit margins increase. However, it must be considered that.

  • Friends and family have finite resources and income.
  • Treat them as partners who have invested in your company.
  • Even if you know the “investors,” never take the business lightly.

  1. Venture Capital

There are people with deep pockets who look for places to invest their funds. They are not ordinary laymen, the venture capitalists. They are business tycoons mainly looking at businesses that are driven by technology. As we know, IT has vast potential now. They want to exploit that sector dealing with communication technology or even biotechnology. So this must be clear to a potential entrepreneur that a venture capitalist may not be everyone’s cup of tea.

If you are getting venture capital for your start-up, means the investor will take an ownership kind of role in your company as well. They will only proceed with your idea because of the possibility of higher rewards and profits from a risky investment he made. Many start-ups powered by venture capital sell their shares to the public to generate more funds. It is always better to seek help only from those investors who have relevant experience in the same field of your business.

  1. Business Incubators

Business Incubators offers potential businesses and entrepreneurs their services, usually in return for a stake in their company. They want to acquire a percentage of the shareholding capacity or even may ask for a stipulated fee. In exchange for that, they try to accelerate the operation speed of the company. The incubation phase may vary for a few months to almost a couple of years. Then, they wait till the production is self-sustainable and leave their premises with their part of the share.

Usually, business incubators are most beneficial for businesses dealing with IT, Biotechnology, or Industrial Technology.

  1. Funding Angels

Certain filthy rich individuals look for small and medium start-ups to invest in. Many top corporate executives who retired recently also look for avenues to churn their earnings instead of sitting idle. They can be a leader in their line of work. They usually have an “angelic” influence on the new businesses with their years of experience and knowledge apart from investing the money. The initial phase of a business which is also its most crucial time is often managed by Angels.

They usually take a seat on the board of directors and keep the supervisory rights until the business can see itself in an autopilot mode.

  1. Government Grants

Sometimes government agencies provide subsidies and various grants to SMEs, especially start-ups. Governments try to aid the new businesses with cash influx, but getting a grant is not easy. There are limited slots to enroll, and hundreds of companies apply for that. The criteria for being eligible for funding are also very stringent. You must provide

  • Project Details
  • Detailed project benefits
  • Experience and background details of key personnel
  • Cost Analysis report
  • Properly filled application forms

Still, then, it is not confirmed that you are getting the government subsidy. The application form gets scrutinized based on

  • Why do they need the grant?
  • How innovative is the plan?
  • What approach are they taking?
  • How proficient are they in their work?

Parting Thoughts:

Entrepreneurship is a welcome move in every economy. Many people from the young generation are gradually getting inclined to start something of their own. They have the ideas, but they lack the fundings. Going through a finance assignment helps us know how banks and financial institutions can help us with loans. So, we have discussed six such options from where a budding entrepreneur can generate funds apart from bank loans.

Author Bio:

Diana Hadley is a retired professor of international business relations. Currently, Hadley is associated with as a subject expert offering corporate finance assignment help. In her free time, she plays the cello and loves

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