Start-ups are taking the world. In the past, founders of such companies were usually older, but recent research from the Center for Generational Kinetics states that today’s entrepreneurs tend to be younger- 30% of millennials have started a small business while 26% already depend on their own businesses.
However, many fresh graduates don’t know when, where or how to start. In fact, 74% of millennials said that they would be more likely to start their own business if they knew where to start, and 59% said that they’d start one within the next year if they had the necessary financial resources.
Most of the students who wish to start a company lack the necessary capital to do so themselves, so they must seek other financing options. That said, the financing you’re looking for highly depends on the type of business that you want to start as many of the financing options are only available if your start-up idea is exceptionally innovative and can instigate passion in potential investors.
As a college graduate obtaining finance for a start-up can be difficult, however it doesn’t mean that it is that impossible. There are many ways to finance a business, and their practicability also depends on the type of business you want to open. Every so often, all these options might be overwhelming, so in this article, we shed some light on the most common ways to finance your start-up.
Crowdfunding
Crowdfunding can be an excellent way to get money for your business, especially if you come up with an innovative idea that has the potential to engage people and investors. What is crowdfunding? Crowdfunding is when organizations, businesses, or individuals fund a project with small donations from people during a relatively short period of time, such as a few months. Crowdfunding is done online, often on social network platforms, which makes it easy for followers and supporters to share a project cause with their social networks. Businesses, organizations, and individuals as well can rely on crowdfunding for any type of project, for instance: creative projects, charitable projects, business start-ups, school tuitions and even personal expenses. There are two main types of crowdfunding:
- Donation-based funding, where supporters contributed to a total amount for a start-up and promised return is the service or products that will be developed with the amount earned by the crowdfunding campaign.
- Investment crowdfunding, where start-ups and organizations seeking capital, can sell ownership stakes in the form of debt or equity. In doing so, individuals who fund become shareholders or owners and have a potential for financial return, unlike from the donation-based funding.
Raising Money Through Bank Loans
Even though this might not seem that enjoyable, getting your hands on a small business loan to finance your new business is still one of the best ways to finance a start-up. According to a 2019 Federal Reserve report, small businesses are the primary source of U.S job growth but are much more likely than larger organizations to face financial challenges.
A business start-up loan is financing meant to help you with the financial need of your start-up. Usually, business start-up loans incomes can go towards things such as working capital, the purchase of an accounting software for business, equipment, supplies, machinery, inventory, and the construction or purchase of the real estate. Depending on your start-up idea, this can be the best way to start.
In your search for business loans, do very thorough research, as conditions and rates can vary greatly between different banks. Make sure you choose wisely the interest rates as they can affect your business in the first years, where you will probably make very little income. A great start would be to consider your private bank. If you trust them and they already know you, they might have something decent to suggest to you.
Angel Investors
A report from the University of New Hampshire’s Centre for Venture Research reports that in 2018 “the angel investors market saw an upsurge in market contribution in more companies but at smaller amounts.” What are angel investors? They’re also known as private investors, angel funders, or seed investors who can provide financial backing for entrepreneurs and small start-ups, usually in exchange for equity rights in the company. When to approach an angel investor?
- When your product or service is developed or near competition.
- You have potential or existing customers who will confirm they will buy from you.
- When you’ve already invested and exhausted all your financial resources.
- You can approach an angel investor when you can demonstrate your start-up is likely to grow in sales in the next three to seven years.
Venture Capital for Start-up
Venture capitals are known to invest in start-ups that are very early in their expansion in exchange for an equity share. That said, if you plan on getting investment from a VC firm, you’d have to be able to give up a part of your business-where the size of the part depends on how much money you need.
The good news about Venture Capitals financing is that they can also provide additional backing because they want to see your start-up progressing as they have a financial stake in it. Moreover, VC firms are known to be specialists in the field, so if they show some curiosity in your business idea, at least you know you’re taking the right path.
When agreeing with VC firms, more likely, they will need to see a return on their investment. Some might even try to convince you to make a profit at an earlier stage than you had planned or might try to influence your business in a course that you personally might not agree with. If you plan on getting financial support from a VC firm, make sure you give them influence to a certain degree.
With a plethora of financial options, starting your business right after graduation might not be that difficult, after all. It depends entirely on your attitude and how you prepare the business to obtain those funds.