Starting a business isn't easy, and just like most other things in life, there's one hurdle that seems particularly troublesome: money. It doesn't matter how good an idea someone has or what their business background is. Without funding, a startup simply isn't going to succeed.
That's why writing a business plan is almost always a good idea. It gives entrepreneurs a foundation to flesh out funding possibilities.
Never give up on the dream of a startup solely due to lack of funding. There are three key avenues for funding a startup, and with the right ambition and approach, entrepreneurs are more likely to get the funds they need.
Here's a look at three great ways to fund a startup, no matter what the size of the business.
1. Utilize Friends, Family and Self
Whenever an entrepreneur starts thinking about starting a business, that's when savings should begin. This will take sacrifice, such as moving to a smaller apartment, and strict budgeting to set aside a solid chunk of money to start a business. It's important to remember that if the business owner won't invest in the company, why should anyone else?
Self-investing is the best route to funding a startup.
But don't dismiss family and friends so quickly. There's no telling what someone may be interested in, or what kinds of savings might be stashed away. Pitch the startup to family and friends just like they were "real" investors, because that's exactly what they might be.
A pitch requires solid financial forecasting and concrete facts about the likelihood of the startup succeeding.
2. Small Business Loans
Small business loans are available through the Small Business Administration (SBA), banks and a variety of other public and private sources. Working with the SBA is a smart move, regardless of financial standing. There's an office in every major city and the staff members are committed to helping entrepreneurs succeed.
The application is relatively simple and a great gauge for how successful entrepreneurs will be with other loans.
Research is critical when applying for small business loans. Entrepreneurs need to ensure that the terms are fair and that paying back the loan is feasible. Small business loans usually require a comprehensive business plan and some require outside investments (which is where family and friends come in). It's a good idea to get help writing a business plan from the SBA before approaching banks and other institutions.
3. Grants and Government Funding
Startups that serve as not-for-profits will largely depend on grants indefinitely. Grant writing and request for proposal (RFP) preparation is a skill that takes experience and practice. However, it's very possible to write a successful grant proposal on a first try. Make sure every instruction is followed to the letter and look at which organizations were awarded funding in the past.
It's possible to find grants online, but a better move is to purchase the Foundation Databook or use it at the library. Many foundations are very small and can't afford the design and maintenance of a website. This Databook is gold in the not-for-profit world, and a starting point to developing an annual grant calendar.
But keep in mind that most grants require 501(c)3 status, so getting that should be the first item to tackle.
Sticking With It
The last, and maybe most important thing about funding a startup is making sure you, yourself, are financially secure. That way, if you have to skip a paycheck, something common for many startup founders, you can. Even CEOs, the most powerful people in a startup, have had to go without while the business is in its nascent stages in order to make ends meet. This can be a particularly sobering idea for young adults who may have student loans; however, by cutting expenses and saving carefully, it is possible to get by.
Finding funding isn't necessarily easy, but there's an art to it. The best method is to take a holistic approach and look in every possible nook and cranny for funds. Many entrepreneurs overlook friends because they don't want to bother them or assume friends aren't interested.
But many successful startups began with the investment of close friends and family members, so don't be shy about asking; all they can say is no (or yes).
Edited by Braden Becker