Strategies on Startup funding for small Businesses

As per fundera, around 29% of businesses fail because they run out of cash. The other 18% fail to survive because of cost and prices. Finances are one of the most vital things for the growth of a small business. Nothing is more beautiful than executing your precious ideas and forming them into a small business. However, to keep it running smoothly and effectively, you require funding. When a small business gets funded, it gains credibility in the eyes of all the stakeholders and clients. Funding also allows startups to seize newer opportunities by adding new product ranges or product lines and ensuring they have sufficient working capital to help their company grow in operations. 

Hence, making the right startup funding strategies is essential so your firm doesn’t have to go through a cashflow crunch. In this blog, we will discuss some business funding strategies for small businesses which will help you be on the path of constant growth. 

Before we proceed further into the funding for small businesses, let us first understand the different stages of investment for budding companies that have not yet reached the seed stage.

Any normal startup, for that matter, has three different phases, namely-

PHASES OF A BUSINESS

THE IDEA PHASE

Very little funding is usually needed during the idea phase to create an idea. This phase generally involves writing an initial business plan and establishing a new legal corporation. It is rarely a good idea to leave your day job at this point. 

MVP PHASE

Once the minimum viable product (MVP) phase is complete, the fundraising struggle starts. At this stage, a sizeable sum of startup capital is needed to launch the business, develop the products, conduct sales, and marketing campaigns, prepare patent applications, etc. At this point, founders must decide whether to leave their day jobs and devote their full attention to the startup. In this phase, funding for small businesses is required to pay off the salaries or wages of the employees.

MARKET TESTING PHASE

For many firms, the business funding needed throughout the MVP and market test phases can range from $500,000 to $1 million, or even more for concepts with considerable product development or capital expenditure requirements. However, when funding for companies, entrepreneurs must ensure that this much money is not infused into a business that hasn’t shown even potential in the previous two phases. A startup must have a product or service people are willing to pay for.

WHAT ARE THE WAYS OF RAISING FUNDS FOR STARTUPS?

Given below are some key strategies of funding for entrepreneurs by which they can raise funds for your business.

BY WAY OF PARTNERS:

One of the startup financing strategies is to partner up. You are enlisting the help of an affluent investor who will invest in your startup in return for a portion of the profits and limited authority. Control over your company is forfeited when you give a partner a bit of it in exchange for financial support. If you and your partners can agree on how to operate the company and you manage to retain majority ownership, having a partner can be an excellent method of startup funding.

BY WAY OF INVESTORS:

A debt or equity fundraising method may include investors. Venture capitalists and angel investors may typically do the business funding for a portion of the company’s equity. You might also develop a debt financing plan with friends and family who have the financial resources to invest in your business. Use an investment contract to specify the amount of the investment and the desired rate of return for the investor when dealing with acquaintances.

BY WAY OF BANK LOANS:

Several startup business funding options exist for budding entrepreneurs wherein they can obtain bank loans as a debt finance approach. You can 

avail startup business loan from any bank or financial institution to raise startup funding. According to bankbazaar.com, more than 39,000 Indian startups have access to private equity and debt funding options.

GOVERNMENT GRANTS:

A grant from the government can be used as a means of funding for companies. 

However, obtaining government grants can be challenging, especially if you have an early-stage startup. Also, MSMEs in India have limited access to government grants. Considering these factors, the GoI decided to devise a startup business loan scheme for startups and MSMEs. 

At the same time, even SIDBI has started MSME and startup financing directly rather than channelizing it through nationalized banks. Another good news for startup founders is that interest rates on loans by SIDBI are lower than that of banks by almost 300 basis points.

PURCHASE ORDER FINANCING:

Businesses can pay suppliers in advance for the materials they need to make their products with purchase order financing (PO financing). It is an option for small business funding that will increase their cash flow before they can start making sales. 

CROWDFUNDING:

More than half of customers believe that supporting small companies benefits the community, and 74% actively seek ways to do startup business funding. Simply put, they might not know how to accomplish it.

Crowdfunding platforms like Angelist or Kickstarter can give your community members the chance to support your business funding. Once your crowdfunding website is set up, you may promote it on social media or at community events using startup marketing strategies.

SEEKING PEER-TO-PEER LENDING:

Rather than relying on credit card payments, peer-to-peer lending enables small business owners to obtain loans from private parties. If you don’t have many debt financing options, business credit, or a track record of success and can’t get a small business loan through your area credit union, peer-to-peer lending can be a decent choice of funding for entrepreneurs.

CONCLUSION

You have a better chance of success with raising startup capital if you can find more sources of income. Being proactive in obtaining finance is one of the finest strategies to protect yourself from financial difficulties. Having various finance options at your disposal might shield you from unforeseen costs or problems.

Start planning your startup capital strategies for the future year by making a calendar for the small company beginning funding right away. Work on your approach to launch your company once you’ve set your small business initial funding plan.