REALISTIC WAYS OF FUNDING YOUR BUSINESS STARTUP

Today’s businesses, especially the small enterprises, exist in an economic landscape that forces creativity and out-of-the-box thinking when it comes to financing. Most small businesses piece together their funding from several different sources phased out over time depending on the business model, projections, and how well one can sell themselves to potential financial partners.

When one is just starting out, they are not at the point yet where a traditional lender or investor would be interested in them, therefore, one has to be flexible, remain positive, and stay vigilant in their efforts. Raising money for a new startup isn’t as difficult as one may think. However, getting the right source of funding is slightly more complex.

For the majority of small business owners these days, they have come to the realization that they will have to self-fund their projects for a significant amount of time until more formal funding opportunities become realistic. Investing your own money into the business eventually makes potential investors more comfortable with you after knowing that you have skin in the game.

Anyone who can start a company on a shoe string budget is adept at bootstrapping. Bootstrapping involves getting the start-up and growth capital with assistance of or with others. The most popular and effective way to round up some initial capital for business is through funding from friends and family. Those closest to you are more likely than anyone else to believe, not only in your vision, but also your ability to make that vision a reality. One disadvantage of course is that you are potentially risking personal relationships should the business fail and your agreement not be structured properly.

You might not have the money to get your business started but maybe you know someone who does. When selecting a partner for your business you need to make sure that their own goals for the business are aligned with yours. As a business partner they will have control over the direction of the business. It is also a good idea to have a buy out agreement in place in case of a breakdown in the business relationship. This should stipulate that the other partner must agree to a proposed buyout within a set time frame or buyout the other partner themselves.

Crowdfunding as another vehicle for funding business ventures that is gaining momentum. Prospective entrepreneurs source for capital to fund their projects or ventures by raising many small amounts of money from a large number of people, typically via the Internet. To start with, you propose the idea that you wish to see funded. People can then choose how much or how little they want to give you. It is worth noting that crowdfunding makes it possible for crazy ideas to get funds. You could also end up with hundreds of shareholders who provide the money you need, but offer no additional value to your business and helping you succeed.

Micro financing is probably one of the greatest success stories in developing world over the last three decades. In Kenya, they include but not limited to: Rafiki MicroFinance Bank, Faulu Kenya, Kenya Women Finance Trust, SMEP, Uwezo Microfinance, U&I Microfinance, SUMAC, Century, Zawadisha, Remu, Uwezo Fund, Youth Fund, Women Enterprise Fund. Micro-credit loans from private financing Institutions are expensive. Interest rates charged by microfinance programs are often over 20%. They have to be, because the overhead is high for administering tiny loans and there is a high rate of defaults. That means it’s hard for borrowers to make enough profit to really get ahead, after they pay loan costs.

After entrepreneurs have made their fortune many of them look to invest their funds back into startup businesses. These are known as angel investors. In Kenya, more often than not, angel investors are found among an entrepreneur’s family and friends. In the Diaspora there is an emerging trend where Angel Networks look outside their circle for ideas to fund. The benefits of receiving angel investment go beyond the purely financial. Most Angel investors share their personal business management experience with the entrepreneur especially in the initial stages of the business development. The capital they provide can be a one-time injection of seed money or ongoing support to carry the company through difficult times.The advice and connections that a good angel investor can offer can be equally as valuable. Angel investors are willing to take on the risk of a brand new startup.

One of the most common ways that people raise capital for their small business is through a bank loan. Banks are more stringent than ever about giving out loans and if you don’t have any credit. They may request that you have your loan guaranteed by the Small Business Association before approval.

How can you possibly consider this route? Seeking any type of capital can be a full time job in itself which is why companies like All Business Loans can be a great way to take the leg work out of it. Another reason to pursue debt financing is that you aren’t giving away a piece of your business. An established commercial account with a bank will make it easier to borrow money when you grow your business. Often a business is assigned a representative who works directly with the company to find the best services and solutions for the issues the business is facing. On the other hand Commercial banking or business accounts are often more expensive than traditional bank accounts. Banks may charge fees for night deposits, for processing a certain number of checks and for the payroll services. Depending on the size of your business, some of the services offered may not be needed, and you may still be charged for the services even if you’re not fully using them.

 Foundations are another financing source that entrepreneur can look up to for funding viable business ideas. Most foundation give funding in the form of grants and loans which are paid back without interest over a relaxed period of time. The limitation this source of financing has is that the amount of grant or loan given is normally small compared to other sources such as the Venture Capital Firms. In Kenya the Foundations that have been driving wheels of entrepreneurship are Coca Cola Fund, Safaricom Foundation, Chandaria Foundation, Ford Foundation, Aga Khan Foundation, The Tony Elumelu, MasterCard Fund, MicroLoan, Virgin Unite, African Leadership Foundation.

Regardless of which path you take, chances are that you may do all of these at some point as your business grows. At the end of the day, you have a business to run and none of this matters unless it has your full attention. So, find a viable funding solution that also allows you to maintain operations and focus on profitability.
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