Funding our business ideas and
startups can at times become an entrepreneur`s nightmare. Many get stuck and
actually lose a good night`s sleep because of the challenges they face in
sourcing funds to finance their business ideas. Financial institutions don`t
make it any easier with the very stringent conditions that must be met to
access finance.
In spite of the seeming
challenges faced with sourcing funds from conventional sources i.e banks and
other financial institutions there are however, other alternative funding
sources that many at times we tend to overlook, completely ignore or are not
aware of. Such alternative funding sources will be discussed below.
Family and friends: This is one funding source that can provide funds
that are either cheap or at no significant cost. Not only are you likely to get
funds at little or no interest but you are also going to get such funds on very
flexible terms. Provided you can present your ideas in a clear, convincing and
professional manner to your family members and friends while also proving to
them the credibility and viability of your business idea you build a network of
people who can support your business idea. Trust is however a key factor in
getting funds from family and friends. It remains the currency that will unlock
the purses and bank accounts of friends and family towards you. The challenge
with family and friends at times may be that you have to subject your ideas and
concepts to the scrutiny of several people and unless you are a very persuaded
person you may derail from the original idea or concept in an effort to please
this circle of people.
Asset Sale: Many entrepreneurs do not realise that the proceeds
from the sale of an asset can provide seed fund to finance their business idea
and startup. Do you have a piece of land, some jewelry, shares and stocks,
vehicles or any other kind of asset whose sale can provide some good finance? Then
you may actually be sitting on your seed capital without realizing it! Would
you rather eat now and pay later or pay now and eat later? The choice is yours.
As long as you are convinced about your business idea and you have done your
due diligence (business planning and market research), selling that asset may
actually be a good way to finance your startup. This is one of the key reasons
why you need to own an asset(s) in the first place.
Other Businesses: Proceeds from a side business may also be another
way to finance that new business idea. This is referred to as “double-dipping”-
the process whereby proceeds from an existing business (es) are used to finance
a new business. You can equally finance your new business from your existing
income as an employee (if you are working for someone else).
Business Plan (Pitching) Competitions: In recent times there has
been an increase in the number of business plan competitions and challenges
which offer successful contestants funds (in grant forms) to finance their
business ideas. The benefit of these competitions is not just that they provide
funds at no cost if you win but also that they provide an avenue for you to
test the veracity of your business idea as it opens it up to a great deal of
scrutiny from people who can advise you appropriately and also challenge your
assumptions. In addition you can also get good mentors and coaches as part of
the winning package.
Crowdfunding: This funding source is gaining a lot of momentum. It
allows you to share your idea with a large pool of people who might be
interested and would only need to provide a small fraction of your required
funding amount. The key here is in the numbers – the more interested people you
get who will believe enough to want to invest small amounts of money the more
successfully this method of fund sourcing will be for you.
Angel Investors: These are investors who will be willing to support
your business idea for a period and for reasonable returns of between 10-20%.
According to Katherine Arline in her article on “15 Creative Financing Methods
for Startups” Angel investors have financed the starting of companies like
Google, Yahoo and Costco.
Venture Capitalists: Funds from this source can also be accessed
especially for businesses that are already getting revenues and have an exit
strategy. Most venture capitalists will invest funds in high growth companies
for a percentage of the shareholding of the company which when the company goes
public they can sell off and recoup their investments.
Cooperatives: These can also be a good source of funding for
businesses especially where such businesses exist in a cluster and can come
together to use their strength and synergy to access funding which can then be
disbursed to their members.
All
these funding sources provide alternative funding for different kinds of
businesses at different stages of growth. You will do well to analyse your
funding requirement and explore the opportunities these alternative sources
present for funding your business idea or startup. References: Arline, K., 2015. 15 Creative Financing
Methods for Startups. Business News Daily http://www.businessnewsdaily.com/1733-small-business-financing-options-.htmlEntreprenureship is a lifestyle...Embrace it!
