New Biz on the Block: 5 Funding Models for Startups

As the saying goes, you have to spend money to make money. This is never truer than when it comes to getting a startup off the ground. Without some cold, hard cash in your corner, your startup will never be more than an “aha!” idea that you once had. There’s some wiggle room in exactly how entrepreneurs acquire their funding, though.

Launching a business comes with necessary expenditures: equipment, commercial space, business insurance for startups, hiring personnel, etc. The hope, of course, is you’ll earn back a positive return on investment (ROI) once your company gets more established. If you’re still on the hunt for an initial financial boost to turn your dreams into a reality, here are five funding models for startups you can pursue.

Standard Small Business Loans

Much like you’d take out a loan to buy a home or a vehicle, you can also take out a loan for your business—if you’re approved, that is. The success of your loan application will depend on a number of factors, including your credit score. It’s important to make sure that you fully understand the ins and outs of a loan before agreeing, from interest rates to annual percentage rates (APR), fees and penalties.

And, as one CEO writes for Inc., first consider a loan from a lending institution that’s backed by the U.S. Small Business Administration. Sure, you can probably find an online lender with more lax acceptance policies, but you’ll have to pay more interest.

Crowdfunding Campaigns

Have a novel idea that you’re sure the world will love? Consider launching a crowdfunding campaign on a popular platform to spread the word. You can reward those who invest with prizes, first dibs on your product/service or shares of your company. You might even go viral with the right marketing efforts!

One thing to keep in mind: Since crowdfunding often happens ahead of the actual launch, make sure you’re being totally transparent with potential backers. As TechCrunch warns, “Don’t crowdfund if critical elements of your tech are not ready. Or, if you do, make very clear what works and what doesn’t to give your backers a proper view of the risks.” If you don’t, your endeavor could be over before it’s even started.

Angel Investors

An angel investor is someone prepared to give you a one-time or ongoing injection of money to get your startup going. These affluent investors use their own money to jump-start new businesses, as opposed to venture capitalists.

Venture Capitalist Firms

Speaking of venture capitalists (VC), these firms use others’ money (as opposed to their own) to invest in new businesses that may otherwise be too risky to get a traditional bank loan. Just remember: With VCs come high expectations, since individual investors who paid into the communal fund expect to earn their money back and then some within a handful of years.

Family, Friends and Acquaintances

If all else fails, you can search for an investor within your very own network. Just don’t let business get the way of personal relationships, or you’ll be in for some awkward gatherings in the future.

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