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Funding a New Business Startup – The Hartford

Posted By on Jul 31, 2015 in News | 0 comments


QUICK SUMMARY

Do you need funding to get a great idea off the ground? Or, perhaps you’re already running a successful small business, but you have to relocate or you’re ready to expand. For whatever reason, you need cash. Major banks and lending institutions have never been known for rolling out the welcome mat to entrepreneurs and small businesses with no long-term track record (although according to the 2014 Small Business Success Study, small business owners report that they find commercials loans are a more attainable yet less desirable funding choice). This article provides a few start-up financing ideas. It’s also worth considering five additional alternative funding methods: crowdfunding, microlending, angel investing, peer-to-peer lending, and start-up incubators.

Crowdfunding

Crowdfunding is a collaborative funding model that lets you collect small contributions from many individuals (the crowd). With donation-based crowdfunding, represented by well-known brands like Kickstarter and Indiegogo, you collect money from individuals and offer them products, or one-time rewards, as perks for donating. With investment crowdfunding, businesses sell ownership stakes to investors who then get the potential for financial returns if a business is successful.

Microlending

Microlenders make small loans, typically in the range of $5,000 to $50,000, to entrepreneurs who can’t get loans from traditional banks. Some microlenders focus on lending to specific categories or types of borrowers, such as women-owned or minority-owned businesses, or ethnic markets, such as Hispanic business owners, and they may also offer education and training to their borrowers.

Angel Investing

Angel investors provide financing to small companies in exchange for an equity stake in the firm. Money received is an investment, not a loan, but angels will want a clear path to profits, either through a public offering or acquisition at some point down the road. As stakeholders in your company, angels are motivated to help you succeed, and may offer mentoring and management guidance to help achieve goals.

Peer-to-Peer Lending

Peer-to-peer lending is the practice of packaging small amounts of money—from $25 on up—from many different individual lenders to provide directly to a borrower in the form of an unsecured personal loan. Over the past three years, peer-to-peer lending to small businesses has grown, and newly established companies with a few years of business under their belts may be able to seek loans of up to $500,000 for terms as long as 60 months.

Startup Incubators

Start-up incubators, many of which focus on the technology sector, support the development and growth of entrepreneurial companies. They offer resources that include physical office space and shared services, expert mentoring, consulting services, legal counsel, and seed money—anywhere from $18,000 to $150,000. Plus, you get networking access to investors and experts who can provide valuable guidance after you leave the incubation program. In exchange, the incubators may take a small equity stake in your company.

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