5 Creative Ways to Fund Your Online Business or Startup This 2020
Posted: April 3rd, 2020 | Author: admin | Filed under: Business | Tags: banking, Business, financing, funding, money | No Comments »
Unless you’ve been living under a rock for the past decade, you must have come across at least one article preaching the gospel of starting an online business. Now, unless you were born into 3rd generation family wealth, chances are, you must have bought into that particular gospel. The reason for this is simple.
Online businesses or startups have evolved from being mere hobbies to becoming one of the surest paths to financial independence. And so armed with your billion-dollar idea(s), you set out to create the next big online business. But like many others before you, you hit one small snag. One which has plagued business enterprises for as long as we can remember. The problem of funding.
As you must have guessed, lack of funding for online businesses or startups is perhaps more detrimental than outright failure in the business itself. This is because while entrepreneurs may learn from their mistakes and bounce back, those who lack funds never get the chance even to start. And so, they’re deprived of the extra income and business experience, and the world, of the next big thing since Facebook.
So, we come to the big question, how do you raise funds for your online business or startup?
Fundraising 101
While the traditional methods of raising funds for your business are still valid, there are more creative ways to do so for your business. Below are some of the more creative options for you out there.
1. Crowdfunding
You’ve probably heard a lot about crowdfunding and are probably wondering why it’s on the list. But the truth is, there are few things as creative as financing your business with the help of total strangers who want nothing but your success. Crowdfunding, as the name implies, is the practice of sourcing for funds from “crowds.” Rather than seeking out a single investor, funds are pooled from different businesses and individuals on platforms created for that purpose.
How do you get started? Get on one of such platforms like Kickstarter and pitch your business idea. The more impressive your pitch, the more likely you are to gain support. One of the advantages of crowdfunding is that you retain 100% ownership of the business most of the time, unlike some other options.
2. Venture Capitalists (VCs)
Apart from crowdfunding platforms, venture capitalists are another way to raise funds for your cash strapped business. This is a funding option that sees investors invest in upcoming enterprises that have a high potential for growth and monetary returns. Because of this, this may not be the best option if your business isn’t profit-oriented. Also, your pitch must even be more impressive than would be the case in crowdfunding. Your growth projections and accounts must completely be in order. Now, if you don’t have a good grasp of accounting principles, you can use accounting software to solve all your accounting-related problems.
You must note that unlike crowdfunding, venture capitalists always look for equity shares in the businesses they invest in. And in addition to this, they are also vested in having a say in decision making.
One significant advantage of fundraising through VCs is that you can raise more substantial capital than you would in crowdfunding. That being said, a great alternative to venture capitalists are angel investors.
3. Vendor financing
For those new to the online business world, you probably may not have heard of vendor financing. And that’s simply sad because it is one of the most creative ways to raise funds. It is a goldmine for those who wish to deal with tangible products but lack the capital for inventory.
How does it work? When you need products but lack the funds to purchase them, you can convince manufacturers and distributors to defer your payment till you sell your goods. So instead of the usual 30-day period, you get an extension that can last for months. This naturally would depend on your creditworthiness and, of course, extra fees.
We advise you to explore this option only when you’re sure of the demand for your product and the direction of your product offering. To do this, you would need a product roadmap template to help you forecast your product’s development over time and align it with the expectations of stakeholders. This way, you don’t run into debt trying to cover expenses when you’re yet to make a profit.
4. Purchase order financing
This is another creative means of raising funds for those who deal with physical products. It is used by businesses that lack the cash flow to purchase inventory to meet customer demands. Here, a financing institution pays your suppliers for the products which you sell to your customers. To take advantage of this method, you need to sell finished goods to business-to-business or business-to-government customers with at least 15% profit margins.
Like vendor financing, your creditworthiness goes a long way in your ability to utilize this option. It also helps if both your customers and consumers are well established and trustworthy as well.
One of the many advantages of purchase order financing is that it creates opportunity for revenue growth without the problem of taking on debt or selling equity shares of your business.
5. Microloans
This is a fundraising option usually reserved for non-profit businesses. Here, finance institutions grant loans to startups that do not qualify for bank loans. The loans can be up to $35,000. Examples of where you can get funds via microloans are Patriot Express Loans, groups like Kiva, and the Small Business Administration, which has its upper limit at $50,000.
In conclusion
Funding an online business or startup is by no means easy. In fact, it’s probably the only barrier between you and the financial independence you’ve longed dreamed of. As you can see, however, it doesn’t have to be the herculean task it was ten years ago for the first set of brave entrepreneurs. By using one or more of the methods discussed above, you’re likely to solve most of your fundraising problems. And the best part? You can still combine these creative modern methods with older traditional means like personal savings and donations from family/friends.
