It’s no secret that one of the major problems in starting a new business is raising enough capital to get it off the ground.
Even if you’ve come up with a brilliant idea for your business, finding the money to hire employees, rent space, buy inventory, or other operating expenses can be very difficult.
The bad news is financing your startup through loans from traditional banks can be close to impossible, and not every professional investor will be interested in the risk-reward rate of your startup.
However, there are other options you can use to launch your startup without them.
On that note, here are three financing options with their pros and cons you can use to fund your startup:
Using Angel Investors
Angel investors are individuals who are interested in investing in new companies with innovative ideas and high growth potential. They are more willing to take higher risks than most investors, and it’s a more flexible and less formal way to raise capital compared to more professional investors.
Angel investors get repaid when your startup goes through future funding rounds, so they are more willing to get your company to that point quickly. They network with other investors to help hasten the process. You’d have more time to grow your startup instead of looking for more investors.
Angel funding is not the best choice for everyone, especially if you’re not interested in giving up a portion of the equity in your business and some decision-making powers.
Crowdfunding
Crowdfunding is a capital procurement strategy that raises small amounts of money from many people through online platforms.
There are numerous crowdfunding platforms on the internet. It is a great way to raise money for startups. You run a low overall risk for a higher reward and get increased exposure for your startup. Crowdfunding helps you avoid giving up equity in your business.
With crowdfunding, you know if there is a market demand for your idea before starting the manufacturing process. If your campaign shows a large market demand for your product, you might be able to secure larger funding from angel investors or venture capitalists along the way.
There are some disadvantages attached to crowdfunding. There is a low success rate and long preparation time. Because there are a lot of campaigns, it’s difficult to get noticed on the platform.
Crowdfunding sites get their revenue through fees charged to startups running campaigns. These sites take a percentage of the proceeds received on successful campaigns (usually 5%), and they have extremely stressful and strict rules concerning how campaigns are run.
You also risk people stealing your idea since you’re required to put every detail about your product in your campaign.
Refinance Your Home Or Take Out A New Mortgage
Refinancing your home or taking out a new mortgage might be a good option if you want to avoid courting investors, applying for bank loans, or asking family and friends for some seed money.
If you decide to remortgage your house, you need to ensure you get the best mortgage rates. You can access the best mortgage rates at loanDepot.
With the option to refinance or remortgage your home, you enjoy the benefits of cost-effective borrowing since the interest rates are generally lower than other lending platforms. It is also easier to repay because you are required to pay little by little monthly till it’s all paid for.
As attractive as it may seem, you need to understand the additional risks involved in this option.
You risk getting your home repossessed if you fail to keep up with your payments. You’d also need to consider the high closing costs and the negative impact they could have on your credit score.
