11 Ways To Finance Your Business

As entrepreneurs, often the biggest hurdle we face when getting our business off the ground, is knowing where we can get funding to make our dreams a reality.

Let’s face it, you need money to make money.

See the article Do You Need Money To Make Money?

Here are some sources of funding for you to consider:

You and Yourself

This is of course the ideal scenario.  You have the funds available and you can use your own funds to fund your start-up.  This is really the way to go if you want to retain equity in your business and only pull in investors when you really need it in the future.  Unfortunately, like most entrepreneurs, you have probably already exhausted this option to get your start-up (and possibly the several failed attempts before that) to this point of needing OPM (Other People’s Money).

If you can, fund your business yourself, however, never (or try to never) put yourself and that of your family at too much risk.  It creates unnecessary stress, and you need to be focused on your business not worrying about buying milk for the baby.  It is always easier to say to investors that you won’t take a salary for several months because you have a small nest egg to tide you over, than it is asking for a big salary because you have personal debts to pay as a result of selling everything to start your business.

Family and Friends

Your very first port of call for investment is your family and friends to help you fund your start-up.  If you are like the majority of entrepreneurs, you probably have bad credit and can’t get a loan, and this option is much easier for you.  These people will often either loan you the money on a traditional loan basis, or maybe even an equity loan basis at an interest well below that of the banks, or alternatively they will do an investment in your business for a percentage equity.  The latter is always preferred, as it reduces the stress of having to meet deadlines for loan repayments, and let’s face it, no business goes according to plan.

See Taking Investment From Friends Or Family.

Remember, if you can’t sell your vision to your family, friends or strangers, you definitely won’t be able to sell it to investors.

Angel Investors

When you are a start-up and need funding beyond that which your friends or family can provide, you can look at Angel Investors.  These investors are wealthy individuals that personally invest in you and your venture.  They are generally a great source of capital for early stage start-up companies that haven’t generated revenue yet or are looking at growing their start-up.

There are two types of Angel Investors.  Angels who invest small amounts, generally not more than $1,000,000 and often much less, and Super Angels who invest upward of $1,000,000.  Super Angels are the likes of Richard Branson, Mark Cuban, etc and generally Super Angels want to see some sort of traction within your business.  Bear in mind that these values change depending on where you are based in the world.

If you are looking for an Angel, they are probably the hardest types of individuals to find as they generally prefer to stay anonymous.  There are one of 3 ways to find angels:

  1. Look at your network and get introductions to people, and inevitably you will find an angel investor.
  2. You can also lookup various Angel Groups or Angel Networks like http://www.angel.co which is a good website to meet angels.
  3. If all else fails, you can always try a fund raising advisor or broker to introduce you to an Angel, though expect to pay a success fee (or equity) in exchange for this.

Venture Capitalists

VCs are firms that have access to funds to invest in various start-up companies at various stages, however they most commonly invest in the growth phase of your company (though there are exceptions to the rule).  This means that your company would first need to be either generating revenue, have a working prototype, have an established customer base or signed commitments, or showing some form of success before they would consider investing in your company.

There are hundreds of VCs firms internationally, and a simply search on the web will highlight quite a few. You can also see http://www.entrepreneur.com/article/242702 which lists the Top 100 VC firms in the US.  If you are looking for VCs in Africa, looking at websites like Silicon Cape will provide you with quite a list http://www.siliconcape.com/page/venture-capital-investors.

Small Business Loans

Small Business Loans are usually given to you by your bank at an interest rate below that of a usual loan, and some can even be guaranteed by one of the various government programs in your country.

Small Business Loans are extremely hard to come by in African countries in particular, as opposed to countries in North America or Europe, given the wide range of red tape and unrealistic requirements these financial institutions, specifically government, puts down on small businesses to qualify.  If, however you are in a position to qualify for such, it is an option to consider for kick-starting your business.


Crowdfunding has provided entrepreneurs with access to funding from people on the web, where entrepreneurs simply present their business concept and raise funding in exchange for some kickback to the investor (maybe a gift, signed memorabilia, etc).

Websites like https://www.kickstarter.com/ have raised hundreds of millions of dollars for thousands of start-up companies.  Whilst Crowdfunding websites give entrepreneurs access to a whole lot of people interested in funding businesses, it is important to note that less than 40% of those applying for crowdfunding ever get funded, and smaller percentage of that reach their funding targets.  It takes a lot of preparation and planning, and some kick-ass automated presentations and marketing to attract crowdfunding on these types of sites.

Crowdfunding has expanded quite significantly, and now includes equity crowdfunding too, where the person investing in your business gets a percentage equity in that business.  This is however in its early stages still, having in recent years been approved in the United States and some European countries.

Crowdfunds has also not been limited to start-up companies only, but has also grown to include property crowdfunding and other markets.

It is however important to note, that some countries do not allow crowd-funding, and most website have pre-requisites as to which countries your business needs to be registered in.


An Incubator is a company or organisation that offers you the infrastructure and business support resources and services you need to start and grow your business.  This can include physical space, basic business services, networks, mentorship, training, etc.  Their funds usually come from private companies, angels or government grants investing in small businesses.  They do not provide you with cash investment, but rather the services and resources you need to get going.

There are some great companies like YCombinator (https://www.ycombinator.com/) that take you through an extensive 3-month boot-camp and get you ready to pitch to investors.  They then also provide you a platform to pitch to various investors they invite like Ashton Kutcher who is an Angel Investor.  Twice a year they invest around $150,000  in the start-ups that have been with them.  Buy the book “The Launch Pad: Inside Y Combinator, Silicon Valley’s Most Exclusive School for Startups

Now not all incubators offer investment or access to a pitch platform or investors, or even mentorship.  Most simply provide the facilities and access to discounted courses or services (which they usually own or have an interest in).

Seasoned entrepreneurs with established businesses that need funds would not look at incubation as a method of starting or growing their business, however this form of assistance to start-ups are great for novice to seasoned entrepreneurs if you starting a new business or need additional support.

Beware though, there are many companies out there that offer incubation in exchange for services, and not only take equity in your business, but expect you to pay a joining fee or expect you to repay those services in the future, whilst having little business success experiences themselves.  Stay away from these types of companies.  Do proper research on the incubators you looking at, and make sure it fits your goals.

Government Grants / Funding

Various countries offer a wide variety of government grants and funding to small businesses starting up or growing.  These grants can not only be a powerful source of funding for your business, given the terms they provide, but also give you access to a very wide network of people within the various departments of trade and industry in various countries, allowing you to take your business international much faster.

In many third world countries, especially Africa, as with anything related to government, there is a catch.  You are going to have to jump through hoops and meet various, often unrealistic, expectations from government, before your business is considered.  These programs are sadly not sustainable given the pre-requisites for funding is not based on the business viability but rather on who you are.

If, however you are willing to jump through the hoops, and meet all the expectations they give you, it is a great source for kick-starting your business.

Bridging Finance

Bridging Finance is available from a variety of different banks or financial institutes, and essentially consists of a loan to your business based on a percentage of guaranteed sales you have in the pipeline.

As an example you have a signed contract to deliver a project worth US$100k, and have already received a small deposit, you can (dependent on your profile) get up to 80% of that US$100k upfront as bridging finance in order to deliver the project.

The same applies in retail outlets that need cash up front.  The finance company will look at your average sales and advance you a percentage of that in order to purchase stock, and debit your account on a weekly or monthly basis by the agreed percentage of sales to cover the advance.

This is a great way to get cash upfront for delivering a project or getting stock upfront, IF you are guaranteed the deal or sales.  However you need to take into account the interest you will need to pay on those “loans” and ensure that is calculated into your price so you don’t spend you entire profit on interest.

This can be a very dangerous form of finance for 2 reasons:

Firstly, the interest on this type of finance is high, especially in third world countries.

Secondly, you need to have proper cash flow management in place.  Too many entrepreneurs end up spending the money on this other than what they should to deliver the project, and end up not being able to deliver the service or product to the customer or repay the loan.

Equity Loans

Equity Loans is where a person or company take a percentage equity in your business in exchange for a loan.  This loan is repaid on an agreed percentage interest from the dividends OR at based on a fixed amount per month, quarter or year.  In the event that the company liquidates, they will be one of the first creditors refunded based on an agreed ratio.

Some friends, family, Angels and VCs who won’t provide you with a straight investment, might offer you an Equity Loan instead.

Some companies will ask that the loan be repaid based on a fixed amount per month plus interest, plus ask for dividends.  Stay away from these companies as they are ripping you off and simply want the best of both worlds; wanting to be an investor earning dividends as well as in addition to that having their loan paid off, with no risk to them.

Other Loans

There are a wide variety of companies and networks that provide loans to start-up companies as well as established businesses, at what they term preferential interests rates.  Many of these companies can be found in the Middle East.  In order to qualify for these types of loans for your company, you need to have the assets available, either in your business or personal capacity, to cover these loans.

I never recommend start-up companies taking loans as it is extremely high risk.

In short, there are various sources of capital for you as an entrepreneur, and it really boils down to what you want and in some cases, what you can qualify for.  It is however not that easy to get this funding, so be prepared to get a lot a rejection, as well as reject a lot of opportunities, until you get the deal that is right for you, with the person or company that is right for your business.

When in doubt, speak to your mentor and let him advise you on the pros and cons of each opportunity.

See the articles “Is Mentorship Key To Success?” and “Do I Need A Mentor

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