6 Ways To Finance Your Startup

If you just started a business, your chances of getting a loan from a bank are very slim. This is because you still represent a high risk for most financial institutions since your business has not yet generated any major revenue.

Few institutions have a startup department and financing criteria are typically very strict. However depending on the industry, there are several other options available to you:

  1. Borrow money from friends or relatives: This is a very common way of funding startups. People you know may lend you money or invest in your company to encourage you and because they trust you. Plus, you can be flexible on the interest you will be paying back or the amount of equity you will grant in return. Make sure however that you formalize your agreements to limit future legal issues.
  2. Apply for a personal line of credit: Getting a personal loan or a line of credit from a bank will generally require you to provide collateral such as a property or cash. However it is a decent option if you are able to generate revenue shortly after you launch your company.
  3. Join accelerator programs or incubator events: Those programs gather several entrepreneurs with a common profile and are a good way to improve your product, meet future business partners and private investors.
  4. Crowdfunding: Crowdfunding is a collective effort from several individuals who donate funds to support a project, generally through the internet. This option allows you to evaluate the popularity of your business idea based on peoples’ interest to finance it. In several jurisdictions donors cannot actually get equity in exchange, but in the particular case of the United States, the Jumpstart Our Business Startups (JOBS) Act will soon allow businesses to be able to raise capital online with small investors.
  5. Microfinance: Some non-profit institutions specialize in services to empower small business owners in their community. If your business qualifies for these types of financing, you could receive a loan that could help you jump start your operations.
  6. Peer-to-peer lending: Websites like Prosper or Lendingclub are interesting ways to raise money. The concept is to bring lenders and borrowers together, in order for everyone to benefit from better interest rates. When you get approved for a personal loan, the underlying amount is being repackaged with other loans into fixed-income instruments called notes which are then classified by risk category. Borrowers then buy the notes, and you pay them a fixed amount of money until maturity.