One of the biggest challenges that new business owners face is how to find financing to get their company off the ground. One recent poll of small and medium size business owners found that almost 13% of business owners reported not having the sufficient knowledge on how to raise funds for their business.
This lack of expertise in securing funding has led many businesses to accept the first loan offer they receive from a bank or enter into a less-than-ideal arrangement with investors. Below, we offer our top three tips to help entrepreneurs and business leaders find access to funds to get their startups off and running.
Tip #1: Consider Reaching Out to Investors Looking to Offer Seed Funding
One innovative (and seldom used) capital-raising alternative is seed funding. This concept focuses on approaching investors with a pioneering business idea that has the ability to become profitable in the short-term, but does not have the funds needed to get off the ground. There are thousands of investors looking to invest in the “next big thing” especially in the world of technology where new startups have the potential of quickly spreading.
With seed funding, investors look to get in early on original business proposals. In exchange for their capital, they usually receive a stake in the startup. Once it begins to grow, seed investors usually sell at a high profit margin.
A well-known example of one of the most successful startup to take advantage of seed funding is Uber. This alternative to traditional taxi service started in mid-2009 with a $200,000 seed funding investment. As it began to grow, a second seed fund investment of just over 1 million dollars came from a group of 30 investors. In only a few short years, the net worth of Uber has ballooned to well over 50 billion dollars.
Seed funding might be a financing option for your business if you feel that you have a business proposal that solves a real problem that many consumers face. Most seed funding investors will not be interested in funding another small coffee shop in a downtown area with twenty other similar businesses. In addition, seed funding generally is not applicable for businesses seeking to offer a product or service that is of interest to a limited customer base.
If, however, your business has a groundbreaking idea (usually in the tech sector) with the potential to affect the lives of a large consumer base, you should be able to find seed investors with interest to give you the funding you need.
Tip #2: Apply for Government Grants
When it comes to securing funding for a small business, many startups only look to the private sector. In Australia, however, several different government grants are available to help startup businesses get the financing they need to get started.
While many business owners will scoff at the bundles of paperwork required for the application process or the long waiting periods, government startup grants have the obvious advantage of constituting a funding source that does not need to be repaid. This means that you will be able to focus your energies on helping to firmly establish your business idea without having to worry about mounting interest payments owed to the bank.
One government grant worth researching is the Accelerating Commercialization Grants of the Entrepreneurs Program. These grants provide businesses with advice and matched funding of up to $1 million dollars to cover the commercialisation costs associated with new products, processes or services.
Another government grant available to businesses looking to get a foothold in the export market is the Export Market Development Grant (EMDG). This grant by Austrade is oriented towards aspiring businesses looking to export products in a wide range of products and industries. The rationale behind this grant is to help increase outbound markets for Australia while also stimulate the inbound tourist industry.
If your business expects to spend large amounts of money on publicity and advertising to promote your export concept, you could be eligible to be reimbursed on these expenses up to 50% of your costs.
Tip #3: Alternative-Financing Solutions
While banks do offer financing for startups, you will often need to have an excellent credit history, detailed and long-term financial projections, and the ability to put up significant assets for collateral. If this is not an option for you, there are several sources of alternative financing for startups.
Several universities, NGOs, and development organisations often have programs called incubators or accelerators to help startups find their niche and gain footing. While some incubator or accelerator programs only offer mentoring and perhaps free office space for a determined amount of time, other programs might also offer small amounts of seed capital in the forms of grants or marginal costs. You will need to be able to sell your business proposal to the providers of this incubator or accelerator seed capital.
Another alternative financing solution for startups is crowdfunding. Today, several different online platforms let entrepreneurs pitch their business proposal to potential investors. While some crowdfunding platforms essentially allow business owners to ask for donations, others will put you in contact with a wide net of potential investors. One of the unique aspects of crowdfunding is that you can offer innovative benefits to your investors such as first-release products. This allows you to secure financing without necessarily relinquishing ownership of your company or business idea.