This article will argue that start-up success will essentially be determined by access to and the availability of finance.
A large number of start-ups fail in their first year. In fact, over 35% of all start-ups that fail in the first year, do so because they run out of money.
Regardless of how good the start-up idea is, unless you have the money, or can convince those who do, as to the efficacy of your idea and the long-term profitability of the business, then it will likely not get off the ground.
If it is an existing business and finance is required for growth, or even continued survival, then as a necessity, you will have to understand how to access such funding, be able to report on financials and access the business credit reports, to know where the business stands financially and how fundable it actually is.
Based on the importance of start-up finance, it is well worth having a very clear idea as to where to look for the money before you need to.
The various avenues of start-up funding
- Government funding, there are several Government, federal and state initiatives that will provide funding for small businesses. Some of this is in the form of grant funding and as such is non-repayable. This is the best type of government funding and although it requires a fair amount of research and form-filling it will be worth it if you could find a government grant for the specific business sector you are in and be able to access it based on size, revenue, and location.
- Private sector equity funding comes from angel investors who will use their own money to finance ideas that they believe will yield extraordinary returns. They will need to be convinced of the market opportunity and the potential of the company to become very big.
- Bank loans and small business loans. There will be many options and a myriad of offerings. For many businesses, the small business loan has been financial salvation. A great place to start the search is with the Small Business Administration, a government agency that facilitates access to funding. However, it is worth remembering that it will need to be repaid, probably with interest. The risk is not shared and any repayment and resulting debt will fall squarely on the business itself.
- Crowdfunding is the ability to raise funds from multiple funders and more recently has been done through crowdfunding websites. It can also be used as a means to promote the company’s products and services and is increasingly done via social media. It’s a simple process to initiate and once people are sold on the reasons you need the finance, your business, and the product, then in exchange for some form of reward (products, shares, or equity), they will contribute to the cause.
Securing start-up funding will likely take a lot longer than you think and as such should be started as early as possible.