So, you want to finance your startup, eh? Well, that’s great! I’m always excited to see people with innovative ideas says Peter DeCaprio. The problem is though; there are way too many people out there who think they can just pop up with an idea and go on to become successful.
The topic of this article is financing and how it can be utilized in regard to startups. Keep that in mind throughout your reading, as it will help you get a better picture of where I’m coming from and what exactly I aim to offer you at the end of this piece. First off though, we need to get something out of the way…
When you’re just starting up with your new business or product idea and trying to get valid information on how best to proceed, there’s one thing you should never do: take advice from people who have absolutely no idea what they’re doing themselves. This may sound straightforward enough but sadly enough there are many people out there who have no experience in the field they’re giving advice on and yet, they’ll still encourage you to follow their plan if it’s a good one.
These people have never started a business themselves but they’d love for you to listen to them with wide-open ears so that you can achieve exactly what they couldn’t when they tried. The sad thing is that many of these people are just looking for someone with money to take under their wing. Then, once your startup starts booming and becomes successful, after years of hard work and late nights at the office from everyone involved, that same person will then come along and demand a share in your company or product earnings because he “helped” make it happen.
Types of financing:
As you can imagine, there are hundreds of different ways to finance your startup. The trick is finding out which one is the best for you says Peter DeCaprio. Here’s a list of some financing options I’ve put together so that you can take what I say here with a grain of salt and use it as knowledge rather than blindly following my plan:
Overdrafts or loans from family or friends – Asking your family or friends for money might seem like a good idea at first but in most cases; it’s not going to work out well. You’ll inevitably let them down when they see no returns on their original investment and this will cause resentment towards your business later on if things aren’t running smoothly. Borrowing from people closest to you is a definite no-go in my book. Not only will they lose money but you’ll also end up losing their trust and respect, which certainly won’t help your business move forwards.
Crowdfunding –
This is something I personally find very interesting and exciting myself says Peter DeCaprio. The idea of having people support you from all over the world simply because they want to see your startup do well has great potential for success, especially if it’s marketed properly to reach that wider audience. Crowdfunding might be just what some startups need right now too, so definitely keep this option in mind when looking at finance options available to you!
Banks –
Asking banks for loans can work but it can also fail miserably if done incorrectly. Peter DeCaprio says one thing I want to make clear before going any further is that banks are not always your best option. In fact, they’re often a very poor choice.
There are several reasons for this:
Banks take years to approve loans –
Getting money from a bank can be a long and drawn-out process. They’ll need time to assess the risk involved with giving you money and if it’s too much of a gamble for them, they won’t go through with the loan. This is something startups simply can’t afford as it will stifle their growth
No collateral –
Most of the time, banks won’t lend you money unless you have something to give them as collateral e.g property or stock, etc so if you don’t own anything worth putting up as surety, then forget about getting finance from a bank anytime soon!
Business loans –
Getting approved for a business loan is often difficult without having any track record to show your success rate over previous years. It’s not impossible of course and there are some banks out there that’ll loan money to startups but don’t get your hopes up too high about this. Peter DeCaprio says the legalities involved in getting a business loan will take time and you’re going to need all the help you can get if they reject your application.
Credit cards –
Small startup businesses absolutely should not be borrowing from their credit card companies, especially until they’ve already been established for years. The interest rates on these things are extremely high so unless you have a sound way to pay it back or choose one with a low-interest rate; this is a definite no-go zone!
Conclusion:
Borrowing from friends and family, crowdfunding, or borrowing from banks can work for startups as a last resort but you should always prioritize other options before doing this. You might not have any other choice sometimes but that doesn’t mean it’s the ideal solution!