A study reveals that 95% of business startups fail during the first year of functioning. Lack of funding turns out to be the prime reason. The path from formulating the business idea to generating revenue needs capital. Capital is considered the lifeline of any business. Hence, at every business stage entrepreneurs wonder about a source of funding for their business. The good part is there are several small business funding options for young entrepreneurs available.
Entrepreneurship is an exciting journey, but it is not an easy one. There are several factors responsible for a successful venture. But, the initial capital funding is considered the most important aspect for any business. Presently, the market is filled with young entrepreneurs who come up with innovative business ideas, but due to the lack of funds, they are unsuccessful.
Effective ways to raise money for business
Crowdfunding is one of the modern ways of funding a startup or a small business. Furthermore, it has also gained huge popularity among young entrepreneurs. It is similar to taking a loan from more than one individual at the same time.
How does crowdfunding work?
- The first step is to put a detailed description of the business on a crowdfunding platform.
- The entrepreneur mentions the goals of his/her business, profit-making plans, and the amount of capital funding he needs along with the reasons.
- On reading about the business, consumers can give money if the idea is appreciated and liked.
- Individuals giving money are required to make online pledges with the assurance of pre-buying the product/service or donating.
Anyone can give money to helping a business that has touched them deeply.
Why consider crowdfunding?
A crowdfunding platform is an excellent way of not just funding a business, but also marketing the products/service. It is also beneficial especially when one is not sure about the demand graph of his/her business product/service. This allows common people to be the funding source, instead of giving importance to the professional brokers and investors.
Crowdfunding is one of the excellent small business funding options for young entrepreneurs. But it is to be remembered that such platforms are competitive and the business idea needs to be stunning and out of the box to attract the attention of the consumers. If the business idea is innovative enough, crowdfunding can work and benefit.
Self-funding, also referred to as bootstrapping, is yet another excellent method of funding a business, especially when it is at its nascent stage. The young, first-time entrepreneurs are often in trouble arranging funds without showing the potential success traction. Several entrepreneurs invest from their own savings and also involve their friends and family members as well to contribute.
This is an easy way to raise funds for business since fewer formalities are involved and the cost of interest is also not bothersome. In the majority of the cases, friends and family members are considerate with the interest rate percentage. Bootstrapping is one of the simple small business funding options for young entrepreneurs. The advantage is that the entrepreneur is investing his/her money, and at a later stage in the business, it creates an impression in front of the investors.
It is important to understand that bootstrapping might not be the right choice of funding for several business ideas. It works best for those business ideas that don’t require huge capital. Some businesses require capital from the first day of their operation and bootstrapping, or self-financing is not the right choice in such scenarios.
Getting hold of venture capital
Venture capitals are professionally organized funds that invest in businesses with huge potential. Furthermore, venture capitals also offer mentorship, expertise, and guidance to the business. Based on the scalability, and sustainability angles, small businesses are evaluated by the venture capitals. It is considered optimal for small businesses that have already started making revenues.
Venture capitals often look for opportunities in businesses that have good traction, a strong team of professionals, and stable business and revenue models. For small businesses that are not ready to work under excessive mentorship or scrutiny, venture capital might not be the right option.
When there is market research executed, several small business funding options are identified. But when it concerns small business funding options for entrepreneurs, crowdfunding, bootstrapping, and venture capitals are considered the top three effective methods.