Every emergent business needs a source of capital. Regardless of the nature of your business idea, this capital has to come from somewhere. Fortunately, there are plenty of places to find funding for an early-stage company.
For guidance specific to your company’s needs and growth trajectory, you’ll of course want to speak with a seasoned business coach, accountant or financial advisor before proceeding. However, these six tips to generate or secure funding for your nascent company are broadly applicable and can definitely give you a leg up regardless of your near-term objectives and overarching vision.
1. Tap Liquid Savings
Although roughly half of Americans live paycheck to paycheck, the other half have at least some financial breathing room.
If you’re part of the second camp, look to your personal savings as a source of startup financing. This is a great way to show future investors that you believe in your business idea. The fact that you’ve personally invested in your company before seeking external funding sources is a vote of confidence for many angel investors and venture capitalists.
2. Stay Lean for Longer
As an entrepreneur, it’s always in your best interest to carefully watch the bottom line. Successful business owners use every available tactic to control costs and remain lean, stretching their startup resources farther.
“As a young entrepreneur, staying lean was very important to me,” says entrepreneur George Otte. “My approach to business allowed me to grow on my own terms and strengthened my enterprise during its critical early years.”
By following in Otte’s footsteps, you can wait longer to seek external funding. When the time finally does come to pitch investors on your idea, you’ll be in a stronger financial position.
3. Borrow Against Home or Retirement Equity
If you have substantial equity in your home or a sizable balance in a tax-advantaged retirement account, you can borrow startup capital at lower rates than those afforded by unsecured loans, credit cards, and traditional lenders such as banks.
Contrary to popular belief, borrowing from a retirement account is possible while preserving your scheme’s tax advantages.
“There are provisions in the Employee Retirement Income Security Act and IRS tax codes that enable people to invest retirement savings in a business if they are active employees in the company,” says business expert Erik Sherman.
In other words, as long as you play a day to day role in your startup’s operations, you can borrow from your retirement savings without incurring a tax penalty.
4. Seek Support from Your Friends and Family
Friends and family members are great sources of “patient capital.” In other words, they may be willing to wait years or even decades to realize returns on their investments. “Patient capital” is the first source of external funding sought by many entrepreneurs.
5. Run a Crowdfunding Campaign
If you have a novel idea that you think consumers will really love, build a crowdfunding campaign around it. Crowdfunding allows you to raise money at relatively low cost without giving away equity in your company or paying interest over time.
6. Apply for Grants and Prizes
No matter what your company does, it’s likely eligible for grants from industry associations, local government agencies, or entrepreneur-oriented nonprofits. It might also be a worthy contestant in startup competitions that promise cash prizes to winners and runners-up. Even if you don’t win, you’ll learn a lot from mentors and fellow contestants.