You’ve got a great idea, and you’re convinced it will translate into a prosperous business. But how can you turn your brilliant idea into reality? It often takes cold hard 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. Fortunately, there are plenty of funding options for aspiring entrepreneurs, and you can explore them when you enroll in the Bachelor of Science in Entrepreneurial Studies degree program at Grand Canyon University.
Not all businesses require considerable startup capital. It is cheaper than ever to start a software as a service business, and even making things through contract manufacturers or 3D printing is less expensive than at any other time. Bootstrapping entrepreneurs are those who cover their startup costs entirely with their own money, or better yet get their customers to pay up front. (Steve Jobs and Steve Wozniak started Apple in a garage after selling a car and a calculator to get startup money; Michael Dell had his customers pay upfront so he had their money before he had to pay suppliers or employees.) Bootstrapping requires carefully watching every expense and getting creative to make ends meet while the business gets off the ground.
Crowdfunding is a relative newcomer to the startup scene. Two of the most popular ones are GoFundMe and Kickstarter, but there are others to check out. 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 business, you’ll need to have a compelling story and a truly unique idea that people will find worthwhile.
Friends, Family and Fools
Approach friends and family with caution and only after you have bootstrapped and tried crowdfunding. If you do take their money, document it clearly. A personal loan is better than giving away a percentage of the company when you can’t value it. 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 money. Don’t make your future family get-togethers a disaster.
A private lender is a financial institution like a bank or credit union. Many businesses get all or most of their startup money from private lenders, but only those that have strong personal credit and collateral and three years of financial history with growing profits. 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 of the terms and conditions of the loan before you sign on the dotted line.
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. This is why angel investors often serve as business mentors, providing valuable guidance, expertise and professional connections to the entrepreneurs. They also tend to join groups with other investors like Canyon Angels.
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’ll 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.
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!
Written with input from Tim Kelley, Professor of Entrepreneurship (CCOB) and Chairman of Canyon Angels.
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.