Affordable Ways to Fund a Startup Without Going Into Debt

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Starting up a business comes with a lot of risk, and funding it with debt makes that risk worse. Try these ideas instead. [[{“value”:”

The go-to advice when you’re talking about funding a new business is some form of debt. Maybe you’re told to pick up a business loan or use your small business credit cards. Either way, you’re going to be talking about interest fees. And even if your business fails, you’ll still typically need to pay back that debt.

If the idea of taking on debt to fund your startup seems too risky, you may be looking for other, perhaps less conventional, ways to get going. Here are a few places to start.

1. Dip into your savings

In an ideal world, you could use cash from your savings account to fund your startup idea. I’m not talking about taking money out of your emergency fund — and definitely leave your IRA out of it. But as long as you have some savings not tied up in those things, it’s perfectly reasonable to use it to get your startup going. (If that money also belongs to a spouse, make sure you’re both in agreement!)

2. Bring on individual investors

If you don’t have enough personal savings to fund your startup, you may be able to find an individual investor who does. In a lot of cases, this will probably be family or friends.

They may effectively donate the money to your cause by insisting it’s a gift. More appropriately, however, you can offer them some portion of your (eventual) profits as recompense, making them actual investors in your new business.

3. Form a partnership

Sometimes, you’ll find an individual investor who wants to be fully involved in the new venture. In this case, you can form a partnership with your new investor and build the business together. Make sure you set out the terms of the partnership in advance if you go this route.

4. Work with an investment firm

I’d argue the goal of many startups is to be interesting enough to garner the attention of a venture capital or investment firm. These are companies that invest in startups and small businesses as its sole purpose. Venture capital firms invest in companies they feel will be profitable, then do their best to make profit happen.

When a big chunk of your money is coming from an investment firm, that becomes the entity your business needs to serve. You can lose a lot of control over your idea if you go this route. However, it can be the simplest way to get a lot of money invested in your startup very quickly.

5. Find an angel investor

Once upon a time, artists and creators occasionally had rich patrons who gave them money to continue their art. Angel investors are a bit like that. Instead of an investment firm coming in with a big check and big demands, an angel investor is often a wealthy individual who rains down money on your company as though from the heavens.

Alright, so it’s not always that beatific. Your angel investor will still require some type of stake in your new business. And, depending on their personal style, they may be just as influential over what happens with the business as a venture capital firm.

6. Apply for a grant, fellowship, or incubator

Startups are, ideologically, intended to disrupt or improve some industry. Not coincidentally, there are a lot of small business and start-up grants and fellowships out there aimed at exactly those types of ideas. Even better, grants and fellowships usually don’t need to be repaid.

How much money you can get will vary significantly. You could get a few hundred bucks from your local government, or you could qualify for a million-dollar prize from a major fellowship. These prizes are generally competitive, however, and you may need to jump through some hoops to apply.

7. Hold a fundraiser or crowdfund

Look, I’m not saying you should fund your startup with a bake sale. But I’m also not not saying it, you know?

Joking aside, fundraisers have been a way for people to fund startups and nonprofits for ages, and it’s still a viable option, depending on the business you’re trying to start. (And if you want to offer baked goods in exchange for folks’ donations, who’s to say you shouldn’t?)

If anything, fundraising may be even easier these days thanks to digital resources making it simple to crowdfund for just about anything. So long as you have a bit of marketing savvy — which you’ll need for your startup in general anyway — you can use sites like Kickstarter and Indiegogo to get your idea out there and find like-minded people willing to donate to your cause.

It takes money to make money

According to Shopify, the average new business spends $40,000 in the first year. Depending on the nature of your startup, you could easily blow past that figure — especially if you’re doing a lot of research and product development.

There are a lot of ways to get that money together. While loans and business credit cards are two of them, I’d try some of these debt-free methods before taking on that extra risk.

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