5 ways to generate capital for a startup

Money is the lifeline of any business. A person cannot establish his business startup without adequate capital and because of this, a lot of creative business ideas are suppressed.

When entrepreneurs finalized their business ideas, they find themselves asking-How do I finance my startup? In the old era, it was a difficult task to raise capital for startups but now there are several strategies for raising capital for a startup through taking loans, personal savings, and many more.

Self-funding, generally known as bootstrapping, is a successful method of startup financing, especially when you are just going to start. Without any traction and a plan for possible success, first-time entrepreneurs frequently struggle to obtain capital. You can invest from your personal resources or solicit contributions from family and friends. This will be simple to raise due to few formalities/compliances, and also lower raising costs. In most situations, family and friends are flexible with the interest rate.

Self-funding or bootstrapping should be considered as a first funding option because of its advantages. When you have your own money, you are tied to the business. At a later stage, investors consider this as a good point. But this is suitable only if the initial requirement is small.  Some businesses need money right from the day-1 and for such businesses, bootstrapping may not be a good option. However, this is only appropriate if the initial requirement is limited. Some businesses require funds from the start, and bootstrapping may not be an option for them.

The best way to generate capital for a startup is to take loans from banks. Banks give loans to entrepreneurs who have credible startup ideas on easy terms and conditions. People have to fulfill some requirements of banks like having an excellent credit score, a complete business plan, and business knowledge to get business loans from banks.

Crowdfunding has now become a major source of funding for a startup. It is a new way of raising capital for a startup that has been gaining popularity among entrepreneurs. An entrepreneur has to put all the details of his business plan, his business goals, investments, details of the product, plans for making a profit, and reasons for a new startup on the crowdfunding platform. The crowd funders will read the business idea and plan on the online platform and if they like it, they'll make a pledge to support his business model publicly by pre-buying the product and by donating funds respectively.

Technology has made this way of generating capital very easier for entrepreneurs. It also creates public interest for your startups and hence helps in marketing the product for free alongside financing. Since crowdfunding is a competitive source to earn funding, so unless your business model is rock solid, unique, and can gain the attention of consumers then there is the possibility that your business idea will be overlooked or rejected.

Without an established business history, one way many entrepreneurs start their fundraising for a startup is with angel investors. Angel investors are those non-institutional people who have sufficient and surplus money and are interested in investing in new startups to help them grow into big businesses. Entrepreneurs and Angel Investors make agreements with flexible and easy terms and conditions. Angel Investors often offer capital without interfering too much with your business. They offer funds in exchange for debt and equity and provide mentorship and advice alongside funding.

Now you know the process of how to generate capital for a startup but if you want to grow really fast, you will most like want outside funding. If you bootstrap and do not receive external finance for an extended period of time, you may be unable to capitalize on market opportunities. While the plethora of lending choices may make getting started simpler than ever, smart business entrepreneurs should question themselves how much financial support they truly require.