Having the proper funding in place is one way to ensure a newly-established business’s success. It generally provides the financial resources and backing needed to get a startup off the ground and grow, as well as protect the owner’s personal assets.
A business startup fund is one of the ways to secure proper funding. Like any financial resource, it’s a pool of money used to cover the costs of launching and running a newly-established business.
Advantages of Business Startup Funds
Having a business startup fund comes with a lot of perks. First, it gives business owners peace of mind. Knowing they have a safety net that they can rely on for any business risk can help them feel more confident.
A business startup fund can also help startups weather a business cycle’s inevitable ups and downs. For example, if their sales slow down, they can use it to keep going until things reoccur.
Another is a business startup fund can help startups leverage business opportunities. If startups are in good positions to expand or enter a new market but have insufficient or no cash on hand, a business startup fund can help them seize and take advantage of the chance.
When to Use Business Startup Funds
First, consider the amount of funds needed to launch your startup. Many business owners launch their startups through self-funding or small business loans. However, you may need a startup business fund if you plan to launch and run a costlier business.
Second, consider the timing of your business launch also matters. If your startup is seasonal, launching after the busy season gives you enough time to save enough funds for your startup costs. However, if your startup requires quick action, use a startup fund as soon as possible.
Lastly, consider the risks associated with your startup. Getting traditional financing like bank loans is likely hard to achieve if it’s high-risk. In this case, opting for a startup fund can be a good alternative to finance your business.
Ways to Secure a Business Startup Fund
The first step in securing a business startup fund is to make a detailed business plan. It must outline your startup’s concept, financial projections, market analysis, and marketing strategy. A strong business plan will increase the chances of securing funding from potential investors.
Have or build a solid track record as well. If you’ve previously launched and run a successful business, there’s a higher chance that investors will give your new venture a try. If you’re a new entrepreneur, secure funding is still possible. However, it’s still necessary to work on your record to convince potential investors of your startup’s potential.
Regardless of where you ultimately decide to acquire funds for your startup, remember that the most important thing is to have a one-of-a-kind business idea you’re very passionate about. With a well-crafted business plan and perseverance, starting a business is within arm’s reach.
Business Loan vs. Business Startup Fund
A business loan is a traditional credit product that’s taken out from banks and financial institutions. One of the main benefits of a business loan is that it can be used for various business purposes, be it for working capital, equipment purchases, or expansion.
A business loan has longer repayment terms but stricter eligibility requirements. Many business loan lenders require good business credit or high revenue, which many startups don’t have yet.
Fortunately, many organizations like the US Small Business Administration (SBA) help startups and small and mid-size enterprises (SMEs). They aid them in availing substantial business loans on favorable terms, even without business history and great credit.
In contrast, a business startup fund can come from different sources, including personal funds, loans from family and friends, and even business loans. It can be provided by venture capitalists and other investors. It typically finances the early stages of a startup, including market testing and product research and development.
Unlike the stringent requirements of a business loan, a business startup fund offers flexible financing for new businesses. However, it typically has a shorter repayment period. While this may mean lower overall interest rates, it’s financially hard for a newly-established company to keep up. Additionally, finding investors willing to provide funding may not be easy.
Alternatives to Business Startup Funds
Business loans and business startup funds aren’t the only ways to finance your startup. Many business owners launch their startups through self-funding as well. As its name implies, business owners independently provide all the financial resources their startup needs straight from their own pocket. They can do so by:
- Bootstrapping (starting a company with only personal savings)
- Credit cards
- Customer commitments
Since they’ve got their own funds on the line, self-funding causes business owners to do their due diligence to ensure they can minimize the risk of losing their money. They’ll likely have a solid business plan and run their company smarter and better as a result. However, self-funding comes with the risk of personal debt and bankruptcy.
Another option is taking out online loans through online lenders, such as CreditNinja.com. They usually offer term loans, where you get the entire loan amount and repay it over a predefined term. Their main advantage is they have easier qualifications than traditional lenders. They even welcome borrowers with poor or no credit.
Online lenders also use modern technologies, like connecting to and analyzing borrowers’ bank accounts, to determine who qualifies. This allows a faster application process. Additionally, they tend to disburse funds fast, as quickly as within a day. If a borrower is their loyal borrower or has good credit, they can instantly disburse loan funds to them.
Moreover, if securing funding from traditional sources is hard and impossible, many business owners tap into capital firms, angel investors, and crowdfunding platforms. They have their own set of advantages and disadvantages, so it’s important to do your research.
Launching a startup is a risky adventure. Many things can go wrong in business; even the best-laid plans can likely fall apart. That’s why having a backup plan is necessary, and having a business startup fund in place is one way to do so.