Best Practices for Funding Your Startup

funding startup

When funding your startup, your goals can be small or big; either way, you want to start with the right financial foundation.

Funding a startup can seem either easy or complicated. A lot depends on your previous experience with finance.

Entrepreneurs who have dealt with financial matters in the past may find some of the following advice redundant. On the other hand, those with little to no financial experience may find the entire financing process downright terrifying. The following guidelines for funding your startup can help anyone find a safe and smart way to fund their startup dreams.

Determine how much money you need to get started.

One of the best ways to find out how much money you will need for a startup is to consult with someone who is already in the same business. If they are friendly and honest, they should be happy to share such information. Do not insist on specific amounts. Instead, try to keep your questions general and vague. Some of these questions may include:

  • How easy was it for you to get funding?
  • Where did you go for funding?
  • If you had to do it again, where would you go for funding?
  • Approximately how long do you think it would take to start a startup today?

There are many applications on the market that will calculate costs and expenses for your particular startup. Some of them are free, some are not. However, there is no need to hire any financial advisor or expert at the beginning of your journey… unless your main dream is too complicated.

However, the finances and funding of your startup are always intertwined with the law. And with taxes. So make sure you have access to legitimate legal advice and tax expertise. Once you have decided, you will need to start your big adventure. Start by asking for options that are reasonably available to you.

Finance yourself.

After you have calculated the amount that will be required to fulfill your dream, first look at your own resources. Is it possible that you could consider funding your startup on your own?

Savings accounts. Shared life insurance. Loans for personal and private property. 401(k) accounts, and so on. If you are very risk averse, you will not be very comfortable risking all your assets at once. Again, if you what risk averse, you probably shouldn’t be an entrepreneur at all!

Get venture capital through investors.

If you are willing to share your startup with others, then linking up with one or two venture capitalists is a sound financial decision. Funding your startup most often requires being open to others.

Venture capital is not a loan. Venture capitalists are willing to take on more risk than bankers. This means they will demand a bigger piece of your pie. The nice thing is that these venture capitalists usually look at their investments in the long term. Most will not demand immediate returns from you. There are fewer papers to sign, which means fewer hurdles to jump over.

But venture capitalists are a secretive group. They are often guided by first impressions and intuition. That way, you can have a dynamite presentation ready for them, but if they like your cleave, they can drop all paperwork and sign up immediately.

How about crowdfunding?

Crowdfunders are not investors in the traditional sense. These are people who like your startup idea and are willing to contribute to it. In return, they expect some kind of reward in the form of free samples, a free membership, or just a thank you mug.

It usually takes a lot of crowdfunders to raise enough money to launch your startup. But with today’s expansion of social media, mentioning Facebook or TikTok can get you all the crowdfunding you can handle.

Be sure to keep a careful record of every crowdfunding contribution. The IRS is often very curious and obsessive about crowdfunding.

There is always a small business loan.

If you have a good reputation and high self-confidence, and if you have connections in banking and government circles, there is little business loan might just do the trick.

You will need a detailed expense report, a business plan, and a viable financial projection for at least several years ahead. When all this is ready, simply go to the bank and request an appointment with a loan officer.

Surprisingly, many provincial banks that you may have never heard of are more flexible and willing to lend you money than the larger well-known banking institutions. In fact, this is one of the most popular practices available for funding your startup.

Last but not least…

Always check if your loan can be guaranteed by the SBA (Small Business Administration). The best way to do this is to use Lender match.


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