If you are looking to fund your startup and not sure where to start? Here is a quick guide to five potential sources of funding for your small business. I have tried to put them in order with the best way first:
- Bootstrapping: Many billionaire entrepreneurs find a way to grow without external financing so that financiers don’t control their destinies or grab a disproportionate slice of the business.
- Customers: Advance payments from customers can give you the cash you need, at a relatively low cost, to keep your business growing. Advances also demonstrate a level of commitment by the customer to your operation.
- Friends and family members: If you’re lucky, friends and family members might be the most lenient investors of the bunch. They don’t tend to make you pledge your house, and they might even agree to sell their interest in your company back to you for a nominal return.
- Startup Loans: Start Up Loans is a government-funded scheme that fund your startup and mentors entrepreneurs. They have a series of delivery partners who will help you develop a business plan.
- Bank loans: Banks are like the supermarket of debt financing. They provide short-, mid- or long-term financing, and they finance all asset needs, including working capital, equipment and real estate. However, they typically are not the first place to look for funds for your startup.
When taking loans to fund your startup from friends and family, banks or another you must, have a written agreement covering every last detail regarding the loan. This includes the loan amount, the repayment period, the amount of each repayment instalment, the interest rate if any, consequences of non-repayment etc. If in doubt get a lawyer to help you.