Many business ideas carrying the potential to revolutionize the world fail to find realization for lack of funds. Some of them struggle to initiate whereas others cease to sustain in the long run. There are sources providing startup funding for small business. Such business can then sustain with this financial support. Unfortunately, many inexperienced business owners are unaware of their options for acquiring funds.
A staggering 96% of startups fail to sustain up to their first anniversary. This number was even higher before 2012 because rarely a startup idea was able to generate funds. However, funding increased by 50% in five years post 2012. Businesses in rising industries are more likely to win the trust of funding bodies. For instance, startups with blockchain or AI as a part of their business idea are more likely to obtain funding. Statista reports an impressive $15 billion in funding for AI in 2017 alone.
Therefore, the likelihood of attaining investment significantly increases if the idea is a remarkable one.
How to get startup funds for a small business?
Following are some of the sources which can fund your startup.
- Incubators as Funding Sources for Small Business Startup
Incubators are companies which enable aspirants to work on their unique business model by providing office space and financial support. Usually, fresh graduates or fledgling professionals are more likely to obtain business incubation assistance. However, the potential of business model serves as the primary parameter for selection criteria.
Some corporations own incubators and entirely fund the participants. However, some incubators also acquire funding from third parties. In return, these parties receive a share of equity.
One significant advantage of working with an incubator is the high probability of success. A collection of industry leaders with a diverse set of skills lead these platforms. Their experience and risk assessment capabilities enable fresh employees to seal success.
Mob Inspire is one of the top incubation centers having successfully raised a number of startups.
- Venture Capitalists
The startups which demonstrate promise by showing strong initial revenue should seek venture capitalists to sustain financial support. These funding bodies start to provide capital once a business sets up and performs highly. They are willing to invest a large amount of money – usually a magnitude of tens of millions.
However, the decision making and documentation processes take longer than angel investment discussed later because the magnitude of money is considerably higher. Ventures can claim back their money as debt if business fails. Otherwise, they get an equity share.
Wealthy investors are not the only venture capitalists who provide small business funding for startups. Insurance companies and pension funds also serve the purpose.
Crowdfunding is one of the oldest ways to arrange startup funding. Seek the funds from the community if your idea is capable of improving their lives. For instance, the residents of a remote town may raise funds to develop smart security and verification system.
Crowdfunding is more successful in communities with wealthy socioeconomic classes. These communities ensure quicker funding and expect a less monetary return.
- Debt Funding for Small Business Startup
Banks are the primary sources of loans in every part of the world. In the US, a strong credit history enables entrepreneurs to acquire loans. If you have an asset to put on stake, it can serve as a workaround instead of paying back money.
The chief advantage of loans is the fact that entrepreneurs do not have to share the equity with lending body. The initial phases may pose challenges since loan seekers have to return it in predetermined time. If you decide to adopt this way of raising capital, ensure that you are well aware of interest rates. Moreover, you should know about every condition placed by the financial institution.
Unfortunately, people with poor credit history usually fail to attain debt. For such individuals and groups, there are Non-Banking Financial Corporations (NBFCs) whose prerequisites and conditions are relatively flexible. However, these organizations provide only a meager amount – that too after extensive paperwork.
- Seeking a National Grant
The transformation from industrial and agricultural economy to knowledge-economy is revolutionizing countries around the world. The growth of this economy depends on the quality of information available and processed. Governments in all developed and most of the developing countries are inclined toward building knowledge-economy. Government funding for a small business startup with potential to create employment opportunities and stabilize the national economy is in the interests of governments too.
Thus, ambitious researchers have high chances of obtaining grant whose worth varies depending on the potential of project. However, there is a drawback too. Governments provide an endowment to universities and independent research centers. It would be intensely challenging to attain national grant without being enrolled in relevant institutions.
Nevertheless, there are alternatives in most of the developed nations. In the US, the National Association for the Self-Employed is one of the options for independent fund seekers.
- Angel Investors
This is one of the best bets for potential startups to acquire seed funding. Angel investors are usually successful entrepreneurs who provide financial platform to implement a solid business idea. Silicon Valley in Palo Alto, CA is one of the hubs for angel investors. People present their business ideas and investors decide about funding after assessing the prospects of return.
These investors are different from venture capitalists in that the business does not have to be up and running. The risk factors for investors providing startup funding for a small business are higher because there is no revenue stream. These individuals keep the investment relatively far lesser than venture capitalists to prevent losing large amount of money.
Although angel investors have the right to acquire equity, yet startups are not obliged to pay collateral if business fails to make its mark. To reduce the risk, investors group together by providing mutual funding. These angel groups may get minor equity but manage to prevent the scare of losing big time.
Mob Inspire is assisting startups with state-of-the-art technologies for over a decade now. If you are struggling to find an appropriate technology partner, contact us today. Our experts with years of experience in mobile app development expertise will assist you in growing as a successful entrepreneur.