How to Fund Your Business Idea
Every business starts with an idea. Bringing that idea to life can be stressful, especially if you start worrying about finding money to fund your company. Luckily, there are many ways to fund your business when you're just getting started. Here are different options available to turn your dream business into a reality.
Common Sources of Funding
Bootstrapping is when an entrepreneur funds their company out of pocket. Most entrepreneurs do this by using funds from their savings account or personal credit cards. When you put your own money into your business, you're creating equity which represents your level of ownership in the business. Investing in your own business can prove to future investors and lenders that you are willing to bear some of the risks of the business.
At first, it may be best to fund your business yourself, but after operating for awhile you might find yourself running out of personal funds. If you plan on scaling your business quickly you'll need find financing from other sources. At Lendified, we require your business to be in operation for at least 6 months before we can help with funding.
Family and Friends
Your family and friends are often the first supporters of your business and are sometimes willing to help both emotionally and financially. In some cases your loved ones may be willing to just give you money or ask for equity. However, when it comes to taking a loan from family or friends, there are a few things to consider before going this route.
The benefits of borrowing from loved ones could include low-interest rates, a flexible agreement, and any other forms of support and resources. However, one of the biggest risks in borrowing money from family and friends is the toll it might take on these relationships. For example, if you're unable to repay a friend’s loan it could lead to a lot of guilt and anxiety. We recommend considering all your funding options before taking a loan from family or friends.
It's common for small businesses owners to seek funding from their bank. However, banks are often looking for business owners with a strong track record and credit history. A good idea isn't enough to get funding from a bank, you'll need a strong business plan to prove your feasibility. Also, banks will ask for collateral to secure the loan in case you default on your payments .
Other Sources of Funding
Government Grants & Subsidies
Different levels of Government agencies provide financing options that may be available to your business. The Canada Business Network provides a listing of the different federal and provincial level government programs. Getting funding from the Government can be difficult because different programs have very specific and strict criteria.
Venture capital refers to firms that make early-stage investments into high-growth companies. Venture capitalists seek equity ownership in the companies they fund so they can receive a healthy return when the business starts selling shares to the public. Most venture capitalists are looking to invest in businesses in technology-driven fields such as biotechnology. The Canadian Venture Capital Association provides a directory of venture capital firms for you to consider working with.
Angel investors are usually wealthy individuals or retired company executives who invest directly in smaller companies. These individuals are often leaders in their field and can contribute both their financial backing and experience. In exchange fir investing in a company, most investors will want to supervise the company's management by being on the board of directors. The National Angel Capital Organization is an organization that provides a network of Angel groups to connect with.
A crowdfunding site can be a great way to raise money for a project. You'll need to set a goal of how much you want to raise and how long you want to spend raising the funds. Then you can get friends, family, and strangers to use the site to give donations. This method works most effectively for quick product launches rather than opening a brick-and-mortar location.
The are many options for you to fund your business idea. Despite which option you take, it's critical that you're able to manage how cash is coming in and out of your business. As you start your business, creating cash flow statements will ensure that your business remains financially stable.
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About the Author
Lendified is Canada's premier online lender for small businesses. The company was founded by former bank executives dedicated to provide businesses with fast, easy, and affordable financing. The Lendified team regularly produces blogs and guides to help small business owners succeed.