The greatest deterrent to starting one’s own business is likely the question of funding. Following a small business idea requires capital, a commodity that few entrepreneurs have when starting out. With this being the case, they look to outside sources for funding. Sources such as family, friends, and, eventually, angel investors. Let’s go into more depth about what this process looks like, for each source.
Sources for Funding Your Small Business Idea
- Family and friends – While this can be the easiest place to look to for funding, be careful. You don’t want to unknowingly take advantage of the love your friends and family have for you by tying them to a failing business idea. If your friends feel like you used them for money, it could irreparably damage your relationship.
- Small business loans – Despite popular belief, there are many organizations who are interested in lending to small businesses. However, these can be difficult to obtain without a solid business plan and high profit projections. Most lenders will also typically charge high rates on these loans.
- Crowdfunding – Websites such as Kickstarter and Indiegogo offer direct links to people interested in investing in businesses such as your own. However, keep in mind that these platforms tend to work best for businesses that are easily explained and have a wide appeal.
- Angel investors – Angel investors are generally looking to make a large investment early on. For an angel investor or venture capitalist to back your business, he/she must trust you and your business plan. This means that you need to know how to answer every possible question pertaining to your business and your strategy for its growth.
When they first started, most successful businesses relied on a combination of many types of funding. No single source of funding is always easiest to solicit. If you’re looking to fund your small business, chances are you’ll try all these options at one point.