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Entrepreneurship: Best Ways to Fund a Startup

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The most frequently asked question every entrepreneur asks is “How do I find the money to start my business?” There are many creative options available for starting a business that entrepreneurs might not find when buying a car, a home etc.

Thus, it is always a question of what you qualify for, and what you are willing to give up, to turn your dream idea into a viable business.

Here are 6 ways entrepreneurs to fund their business

  1. Pitch your needs to friends and family: Professional investors will expect that you have already have commitments from this source to show your credibility. If your friends and family don’t believe in you, don’t expect outsiders to jump in. This is the primary source of non-personal funds for very early-stage startups.
  2. Barter for startup helpThis is most often called trading your skills or something you have for something you need. Like negotiating a free office space by agreeing to support the computer systems for all the other office tenants. Or exchanging equity for legal and accounting support.
  3. Advance from strategic partner: Find a major customer, or a complementary business, who sees such value in your idea that they are willing to give you an advance on royalty payments to complete your development.
  4. Join a startup incubator or accelerator: Incubators and Accelerator mostly provide free resources to startups, including office facilities and consulting, but many provide seed funding as well.
  5. Angel investors: Most metropolitan places like Lagos have groups of local high net-worth individuals interested in supporting startups, and willing to syndicate amounts up to a million Naira for qualified startups. Use Linkedin or local networking to find ones that relate to your industry and passion.
  6. Debt financing / Bank loansThis is only attainable if your startup has good credit rating or existing assets that you are willing to put up for collateral.

For example, if you are to do a business that requires a capital of 1 million Naira and a guaranteed return (net profit) of 20%, if you access a loan of 500,000 Naira at a cost of 5%. Your business structure becomes 50% equity and 50% debt and at the end of the business, you will have gotten 1,200,000 Naira as gross revenue. When you deduct your debt and the cost of debt of 525,000 Naira from the total gross returns, you will be left with 675,000 Naira as your equity which approximately gives you a 25% net return. By leveraging the business, you have gotten an extra 5% profit.

Kindly note that you can only leverage when your cost of debt is lower than your estimated or guaranteed net return on total investment. (We will do a much detailed article on this in the next publication)

Are you having problems funding your business? Fundall.io is here to help all young entrepreneurs build and grow their businesses with our Loan system. Fundall Marketplace is here for all entrepreneur to sell their products.