Six ways to fund your start-up business
By Dennis Isaacs
Standard Bank’s Head of Enterprise Banking
Many people dream of owning a successful business, however not many of them see their dreams to fruition because of various challenges they can’t seem to overcome. One of the most common obstacles that these people face is finding money to fund their business.
As an aspiring business owner you will have to jump through various hoops if you wish to make your business a success. One of those hoops will be trying to find various means to raise funds to make your business operational. Fortunately, there are new innovative ways to raise funds to start your business.
While traditional methods of raising funds, such as banks are still available to people, many new business owners gravitate towards the new age fund raising methods which help them set-up their businesses and once they gain traction and start making profit they make use of the traditional methods to grow and expand their businesses.
You may want to go out and start seeking funding as quickly as possible but before that you should carefully appraise your business plan and ask yourself if you are ready for funding. You may think it’s irrelevant, if you start seeking funding before you’re ready, you may end up wasting your time and heading down a long and disappointing road.
However once you have established that you are ready for funding, here are some avenues you can explore for funding:
Be they family, friends or strangers, if people believe in your business idea and believe it has the potential to be successful, they will invest in it. Crowdfunding entails having a large of people “donate” to your business idea without requiring you to pay them back, as such, it has democratised access to finance by lowering the barriers to financing opportunities for not only entrepreneurs, but also charities and creatives.
Crowdfunding is a good alternative to fund a venture without giving up equity or accumulating debt. So, choose the crowdfunding platform of your choice, share your business goals and raise funds.
Bootstrapping is also a good way to fund your business because it entails you founding or building your company from personal finances or from the operating revenues of the new company. It is also an effective and inexpensive way to ensure a business’ positive cash flow.
It’s the best way to keep company’s mandate 100% your own, without outside interference because you’re not borrowing or selling equity or a stake in your business. Friends and family are valuable in this instance; however, your life savings could come in handy if neither option is available. Bootstrapping is also a great way to get around the early challenges of ‘no confidence’ from banks, investors and other traditional sources of capital.
Factoring is a finance method where a company sells its receivables at a discount to get cash up-front. However, factoring should be the last option as it can cause substantial amount of immediate debt. It is most commonly considered by those with limited funding, and are strapped for cash. Seeing as the business is selling its receivables at a discount to obtain immediate cash, it can be dangerous and should rarely be used.
Angel investors are typically wealthy people who provide start-up capital for a business in exchange for convertible debt or ownership equity; however they are generally more private and harder to find because they don’t want to be inundated by deal flows.
The capital angel investors provide may be a one-time investment to help the business propel or an ongoing injection of money to support and carry the company through its difficult early stages. Angel investors are focused on helping start-ups take their first steps, rather than the possible profit they may get from the business which is why they are ideal for aspiring entrepreneurs.
Namibia’s government, like many across the world has realised that small businesses are important to local economies as they create jobs and promote self-sufficiency. As such, the government has various loan and grant initiatives which they award to budding entrepreneurs.
However, government loans and grants are usually subject to key deliverables such as job creation, women empowerment, and youth and economic development being met. With affordable repayment options (or no repayment at all for some grants), they are the best option for entrepreneurs who are working with very little.
If you have a good credit record and capital (raised from bootstrapping, crowdfunding, angel investors, etc.), it can open up financing from the bank. You need to be able to prove to the bank that your business idea is viable and that you have a client base anticipating the launch of your product or service. Cash and fixed assets are a great way to show that you have security and increase your chances of being approved for a business loan.
The way in which people do business is evolving, this also means the way people start their businesses is evolving, and there is no right or wrong way to do it. Get creative when you need to fund your business, there are many options you can consider, such as holding networking events in your community, asking for material donations, and getting media exposure. Cash has rarely stopped a focused entrepreneur from achieving their dream so don’t let it stop you.