Funding a start-up business is pretty tricky, and it is much tricker with an inexperienced and young entrepreneur who believes that their business is somehow ‘different’ or that they can make their mark in a sophisticated business environment.
It’s important for an entrepreneur to be positive and enthusiastic. But before you set out to raise capital for your venture, it is important to have a clear understanding of what’s involved. Many entreprenuers have misconceptions about start-up funding. Here is a list of the most popular myths to be aware of:
#1 Your Business Plan Is the Golden Ticket to Financing
No one simply invests in a venture just by looking at a business plan. You do however, need to have one to present to the investors as they might want to see the ideas on paper. But keep in mind that this plan isn’t your golden ticket to financing. Investors will choose to invest in your company or product and not the plan itself. How well you present your idea, and the impression they have about your ability to get the business venture off the ground matter a great deal.
#2 Venture Capital Financing Is a Great Opportunity
If you want to fund your business in a reliable manner, it is important for you to know that venture capital funding is highly competitive & rare. Only businesses that secure this type of capital show long-term growth and a pretty good chance of ROI. Unless you have a successful record and a number of resources, you will have to struggle harder to get financing for your start-up.
#3 Bank Loans Are A Great Option for Funding Start-Up Businesses
This statement is not necessarily true. There is a certain degree of risk involved when you take out a personal loan. Banks are very cautious while financing start-ups as they consider them to be high-risk ventures. Most often, start-ups don’t come up with enough collateral and this adds an element of risk to the proposition.
However, you can always put up your house as your own personal collateral if you want to finance your business. It is important to keep in mind that this is still risky and it’s something you need to be very prudent about.
#4 I Started This Business with Just A Few Hundred Dollars On Hand
Each one of us loves a good success story, and think that we too can successfully start a business with a couple of hundred dollars in our pocket and working out of our garage. While there are exceptions, this isn’t realistically what happens with most people.
You should be aware that you will end up spending a lot of your own money at the start.
So don’t quit your job just yet. If you keep your job, you will still have a steady source of income while your business is growing. Putting up a third of the necessary capital is important if you want to get approved for a loan. Reasonable assets have to be guaranteed for the remaining amount.
#5 Getting Funding From Family or Friends Is Fail-Safe
It is great if your family or friends are ready to invest in your start-up and it means that they believe in your venture. However, it is important to make sure they are aware of the risks involved and that there is a chance they might not see any of the money again. Know how much you are betting and more importantly, know how much you can afford to lose.
In addition, it is also important to conduct enough research and find out what the best funding options are for you.
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