How to Finance a New Business Without Expensive Loans

Starting a business and steering it to profitability requires financing which varies depending on the type and size of a startup.

Contrary to popular belief, there is a multiplicity of funding sources for startups if their founders are creative enough to look in the right places.

Each source has its merits and demerits; therefore you should weigh them against your needs to determine which one is best suited to your business.

1. Self-funding

Funding a startup from an entrepreneur’s finances is the best way to finance a new business but can be difficult for capital-intensive businesses.

It is advantageous since you have full control of the business and you are not answerable to anyone for the decisions you make.

2. Family and friends

These are the people closest to you and are aware of your passion, dreams, and efforts. They are your second-best option after self-funding.

Getting help from them is good since they have lenient repayment terms. However, it can ruin relations if the business fails and you are unable to repay the loan.

3. Angel investors

Angel investors are well-to-do personalities with a lot of experience in the industry who fund a startup in exchange for equity in the company.

Besides funding, they offer guidance in different stages of the business and provide connections to their network which promotes business growth.

4. Customers and suppliers

If your idea is innovative and people are very interested in your products some customers may be willing to pay for them in advance which enables you to utilize the money for production or purchase of stock.

RELATED: How to Start a Construction Company in Kenya

On the other hand, some key suppliers are always willing to sell their merchandise on credit to businesses with high growth potential – which reduces the need for financing.

While not easy to come by, customer/supplier support is easily the best way to get finance for a new business venture.

5. Purchase order financing

If you get an order from a reputable organization and you lack immediate working capital, most lenders provide short-term financial assistance based on verified local purchase orders.

It is good for new businesses since financing is pegged on the creditworthiness of the company making the purchase.

6. Crowdfunding

This is a new way of funding a startup where an entrepreneur makes pledges online for financial assistance from individuals who believe in the product or service they want to develop.

A large number of people give small amounts of money as donations or in exchange for small tokens such as branded t-shirts, caps or future discounts once the business is running.

Convincing people to support your project can translate to adequate funding for your business leaving you debt-free and with 100 per cent equity.

7. Grants

Equity-free funding in the form of grants is mostly offered by governments to young innovators in specified sectors to foster the entrepreneurial spirit and create more jobs. If your idea is revolutionary and has high potential for commercialization you can get 100 per cent funding.

Join 15,000+ pros getting our weekly digest of news and insights.