You have an excellent business idea and an even better business plan. The only problem is, you lack the capital to implement your plans. Even worse, you don’t know who to approach for financing.
Should you approach your bank for a loan? Or, are there other alternatives to explore? To answer the first question: By all means, approach the bank. As for the second: Yes, more alternatives exist, ready to be explored. And here they are.
1: Apply for a Bank Loan
You have a bank account, right? Then approach your bank for a loan. Chances are, it’ll give you one in as little as 24 hours. But there’s a catch.
You need collateral or at least a guarantee to secure the loan against. Or, the bank will consider you – like it considers all startups – a risk and reject your application. Now, for collateral, use your home or car.
But if you’re unwilling to risk such valuable assets, then get a guarantee from the Small Business Administration. It guarantees up to 80 percent of your loan if you qualify.
2: Approach Venture Capitalists
Does your business have a high growth-potential? Then established entrepreneurs are likely to notice the potential and approach you, hoping to buy equity in your startup. And years from now, when your business has taken off, they’ll reap high returns.
However, don’t always wait for them to make contact. If possible, seek them out instead. And when you find an interested investor, sell them your ideas through a convincing sales pitch and presentation.
But remember, when you approach them, they hold the power. So besides buying equity, they may request to have debt financing as part of the deal.
3: Approach Angel Investors
Unlike venture capitalists, angel investors are not after financial gain. They just want to help you to grow your business. Now, why would a stranger be interested in you? For philanthropic reasons, of course.
Like you, angel investors started small, worked hard, and struggled to develop connections or access financing. Eventually, they made it big. And that’s what they want any entrepreneur – including you – to do.
So they offer to others what they never had – mentorship, connections, and financing – with no strings attached. However, you must find and connect with them first through angel-investment networks like Investors Circle or Angel List.
4: Rely on Crowdfunding
Crowdfunding combines angel investing and venture capitalism but with a twist. For starters, it doesn’t rely on wealthy or well-known investors like the other two. Instead, it comprises of many small investors, entrepreneur or otherwise, out to make a buck or to help someone out.
And with a few exceptions, these investors contribute small amounts. But thanks to their large number, they often raise significant sums of money. So how do you attract a large crowd to fund your project? A solid business idea and a well-crafted sales pitch usually do the trick.
5: Precautions to Take
As you raise funds, exercise caution. Don’t approach any lender or investor across. Or, you might receive funds only to pay excessive interest rates later.
How then do you know whom to approach and not to approach? By having the right information. The more you know about a lender, the better you can decide whether they are suitable for you.
Unfortunately, that’s easier said than done. Too many lenders exist. And sifting through the details of each one is impossible, for you that is. But to a lender comparison website, it isn’t.
Not only does it gather information about different lenders, both online and offline, but it also compares them. For this reason, you can find loans on this site that match your preferred loan amount and interest rate. And with that information, you can confidently start the loan application process.
Conclusion
From angel investors to venture capitalists, there are now more financial doors open to you than ever before. Therefore, make use of them. But first, do your homework, compare the lenders, and then get the best rates.
Henry Lares is still early into his career as tech reporter but has already had his work published in many major publications including Tech Crunch and the Huffington Post. In regards to academics, Henry earned an engineering degree from Apex Technical School. Henry has a passion for emerging technology and covers upcoming products and breakthroughs in science and tech.
