Funding Your Startup: A Guide for Aspiring Entrepreneurs
You have a great idea and are convinced it will translate into a prosperous business. But how can you turn your brilliant idea into reality? It often takes a significant amount of cash to start a new company and even if you have savings it might not be wise to invest everything you own into a startup company. Fortunately, there are plenty of startup funding options for aspiring entrepreneurs, and you can explore them when you enroll in a Bachelor of Science in Entrepreneurial Studies degree program.
Bootstrapping
Not all businesses require considerable startup capital. Starting a software as a service (SaaS) business and utilizing contract manufacturers and 3D printing services has become more affordable in recent years. Bootstrapping entrepreneurs are those who cover their startup costs entirely with their own money or, better yet, get their customers to pay up front.
For example, Steve Jobs and Steve Wozniak started Apple in a garage after selling a car and a calculator to get startup money;1 Michael Dell had his customers pay upfront so he had their money before he had to pay suppliers or employees.2 Bootstrapping requires carefully watching every expense and getting creative to make ends meet while the business gets off the ground.
Crowdfunding
Crowdfunding is a relative newcomer to the startup scene. It is one of the fastest ways to cast a big net for attracting investors to a business. Two of the most popular websites for crowdfunding are GoFundMe and Kickstarter, but there are many other alternative options you can consider as well.
A crowd-funded business receives small amounts of cash from hundreds or thousands of individuals to get an idea off the ground. In order to convince people to fund your startup, you’ll need to have a compelling story and a truly unique idea that people will find worthwhile.
Friends and Family
While it may be harder to convince investors or banks of the quality of your idea, your family and friends often believe in your dream and may lend you money at a low interest rate or even no interest rate or may ask for a lower amount of equity. Approach friends and family with caution and only after you have bootstrapped and tried crowdfunding.
If you do go to friends and family for loans, it’s a good idea to make sure that each of you gets sound legal advice, especially if you are taking the money as a loan. Don’t take their life savings; explain the extreme risk associated with startups. You don’t have a proven business–you have an experiment! They could, and statistically will, lose all of their investment. Be careful if you decide to proceed this way.
Private Lenders
A private lender is a financial institution like a bank or credit union. Many businesses that have strong personal credit and collateral and three years of financial history with growing profits get all or most of their startup money from private lenders.
Plan to take your time shopping around for the best rates. Usually credit unions offer more favorable rates, but they only lend to members. Additionally, private lenders will want to see a comprehensive business plan before making a loan offer. Make sure you understand all the terms and conditions of the loan before you sign on the dotted line.
Angel Investors
An angel investor is an individual, not a financial institution. These are also referred to as private investors or seed investors. Angel investors aren’t venture capitalists because they typically use their own money to fund businesses that they believe can become prosperous.
Since angel investors are taking on considerable risk to fund a new business, they want to be sure that the company will succeed. Therefore angel investors often serve as business mentors, providing valuable guidance, expertise and professional connections to the entrepreneurs.
Government Grants and Loans
Federal and state government agencies consider it in the best interests of the economy to help aspiring entrepreneurs hang out their proverbial shingle. This is why some businesses get funded with government grants or loans. You will probably have a better chance of getting funding this way if your business will create jobs or if your company will be located in an economically-depressed area in need of revitalization. Some grants and loans are intended for specific industries, like STEM fields. The Arizona Innovation Challenge is a current example awarding hundreds of thousands of dollars each year.3
The Colangelo College of Business at Grand Canyon University is proud to graduate students who are ethically-minded leaders determined to make a positive difference in their communities. If owning your own company is in your future, consider earning your Bachelor of Science in Entrepreneurial Studies degree with the support of our dynamic learning community. Look for the Request More Information button to get started today!
Retrieved from:
1 Mashable, Garage Where Steve Jobs Started Apple Designated as Historic Site, in March 2021.
2 Small Business Trends, How To Get Paid Like Michael Dell, in March 2021.
3 Arizona Commerce Authority, Arizona Innovation Challenge: Apply, in March 2021.
The views and opinions expressed in this article are those of the author’s and do not necessarily reflect the official policy or position of Grand Canyon University. Any sources cited were accurate as of the publish date.
