Is Your Small Business Ready for Funding?
Starting a new business is said to be one of the most rewarding things a person can do. It takes an investment of time, consistency, and initiative–but that’s not all it takes. Your startup may also need significant monetary investment to help the business get off the ground and succeed.
In this article, we’ll discuss whether you’ll need additional funding for your startup and highlight ways you can source funding to scale and grow your business.
Common Startup Costs
If you haven’t started your business yet, there are a number of common costs you’ll likely incur. These can be items such as conducting market research; borrowing costs and interest rates; insurance, permits, and licenses; equipment, supplies, and technology, like a card reader; and more.
The initial investment required could be quite significant, so if you don’t have the funds to start your venture, you may need funding straight away. However, if you’re looking to grow and scale your business, it may be a lack of funds that are holding your startup back.
Are You Ready for Funding?
The number one reason startups fail is due to funds running out. However, not all startups need or are ready for funding. So, how do you know when the right time is for your business? Here are six key factors to consider:
1. Are You at Capacity?
The second most common reason startups fail is there is no market need. Though, if you’re receiving inquiries at a rate faster than you can respond, then this is a good sign that there’s a definite need, so you may need to scale.
2. Are You Profitable?
Can you show a track record of being profitable over a period of time, and is your business trending upwards? Investors will want to know this information if they’re considering investing in your company. You can read our article on how to calculate your break-even point as a start.
3. Have You Successfully Tried & Tested?
Feedback from your customers is paramount to your success. A good way to do this is to use a combination of data–sales, feedback forms, AB testing, and social listening are just four ways you can measure your success.
4. Do You Have a Solid Team?
If you have a team you can confidently trust to keep your business running, then it’s an indication that you’re ready to scale.
5. Do You Have a Business Plan?
If you’ve answered yes to everything on this list, your startup is likely ready for funding. Make sure you have a solid business plan that demonstrates your knowledge of your business, including things like operating costs, legal structures, and potential income forecasts.
Types of Funding for Small Businesses
There are a number of ways you can source funding for your startup. Let’s break it down:
Business Loans
Business loans are one of the most common forms of funding. When you take out a loan, you simply pay the loan back with interest. You can take out business loans from:
Banks/Credit Unions: competitive interest rates, but can be more difficult to get approved
Online Lenders: higher interest rates, but can be easier to get approved
Lines of Credit
Just like business loans, lines of credit are a loan that you take out and pay back with interest. The difference is that you’re given a maximum total, and you can borrow any amount up to that total. You can usually get lines of credit from the same places that offer business loans.
Equity
An investor gives you funding in exchange for a percentage of equity and profits in your company. This gives them “skin in the game”, so not only do they have an interest in your success, they take on some of the risks with you.
Grants
These are given to businesses, such as nonprofits, by the government. You don’t need to repay them, which is great. However, they aren’t the fastest or easiest route for funding, as they can often require very specific criteria for a business to qualify. Another type of grant comes from the Small Business Administration where they are guaranteed a partial loan. This makes it easier to get approved by a bank or a lender for the remaining amount.
Crowdfunding
Crowdfunding is accepting small donations (investments) from a collection of people to create a sizable investment. Platforms like Kickstarter, and Indiegogo are examples of crowdfunding. You can also set up a GoFundMe page so the friends, family, and the public can support your startup for a small amount.
Bootstrapping
Bootstrapping is how many entrepreneurs start. You fund your own startup using your own personal savings, credit cards, and bank accounts.
Funding Your Business Has Never Been More Accessible
Launching a business is no easy feat. However, there are many funding options available today that can help your business grow and scale.
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