Lack of working capital, poor management skills and bad leadership are some of the major reasons why small businesses and startups fail… and the purpose of this article is to enlighten you on ways you can get money, which will help in financing your startup. 

In fact, 67% of small businesses fail within the first 10 years of operation, according to the Small Business Administration… and a large chunk of this is attributed to lack of funds needed to run the businesses 

Obviously, nobody wants the aforementioned to be the case in his/her business. 

Having said that, let’s delve into the various options you can consider in financing your startup. 

Note: this article is part 2 of a series; ‘Startup Financing’, meaning subsequent parts will be released each discussing 5 different options you can utilize in financing your startup.

1. Issue Corporate Bonds

Corporate bonds are debt instruments issued by companies, be it private or public, to the general public in order to raise money needed to finance the business. 

What are debt instruments? 

According to investopedia, debt instruments are documented, legally binding obligations used to raise money by an entity, with promises from the entity to repay the creditor, lender or investor as per the contractual agreement. 

Bonds are typically issued at a certain price and fixed periodic interests are paid to the lenders (bondholders) at regular intervals after which the principal capital is paid at an agreed upon time — also known as the maturity date. 

Generally, when you choose to issue bonds as a means of financing your startup, the agreement requires you specify a collateral, so in the advent of you defaulting (not being able to pay back your debt), your collateral will be seized and used to pay back your bondholders. 

If you wish to issue corporate bonds, you should follow this procedure

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2. Issue Debentures

Debentures are basically the same thing as bonds, the only difference is that they don’t require collateral

Since debentures don’t require collateral, the creditors must rely on the creditworthiness or reputation of the issuer. 

There are 2 types of debentures; convertible and non-convertible debentures. 

Convertible debentures are debt instruments held by creditors which can be converted into stock/equity of the issuing company – in this case your startup. Non-convertible debentures on the other hand can’t be converted into equity. 

If you choose to issue debentures as a means of financing your startup, you should know that these debentures are also subject to fixed periodic interest payments after which the principal capital (amount owed) will also be paid upon the maturity date. 

Generally, non-convertible debentures attract higher interest rates than convertible debentures… and this is due to the fact that the former is a less favorable option for creditors because it can’t be converted into stock. 

3. Start a side gig

Yes, this is the route most smart entrepreneurs would take. And the best way to do this would be by offering a service

When you have lofty ideas of building factories or a super big tech company, you should hold that off for the long term and focus on short term goals of rendering services that will get you paid in the meantime. 

You could offer a variety of services ranging from freelancing, marketing services, consulting, designing and a host of others. 

The money you’ll make from running these side gigs should be used as seed money for financing your startup. 

All you need to do is look within yourself and sort out what revenue generating service you can offer that will cost you little to nothing in investment. Generally, you should offer services in fields that you have a solid experience on.

I highly recommend you read Starting a business with no money [8 things you need to know & do], it will give you valuable insights as to what to do when starting out a business while being short of money. 

4. Join a business incubator

You must have heard of an incubator, or maybe an ‘accelerator’… they’re basically the same thing. 

A business incubator is a company which helps grow and develop startups by offering them various services such as business training, business planning, marketing, financing, accounting, legal etc. 

According to the National Business Incubation Association (NBIA), it’s member incubators are categorized into the following types;

  • Academic institutions
  • Non-profit development corporations
  • For-profit property development ventures
  • Venture capital firms
  • Combination of the above.

Generally, when you join an incubator, you’ll be provided with all the resources you need in growing and financing your startup. And the amount of time spent in an incubator varies, with the average being 33 months. 

Once you join an incubator, may be provided with an office space and sometimes laboratories, in order to develop & test your product(s) cheaply, with supervision and guidance. Incubators also provide you with access to loan facilities and seed capital needed to finance your business. 

Once you’ve completed your incubator program and your product is ready, you will leave the incubator and face the real market on your own… by this time, you must have gained the necessary expertise and capital needed to finance your startup. 

5. Peer-2-Peer (P2P) lending

P2P lending, also known as social lending, enables individuals to borrow loans from other individuals, without the need of financial institutions. 

P2P lending platforms connect investors (lenders) to borrowers. These platforms determine the interest rates, terms and facilitate the transactions. 

If a bank loan or microloan isn’t feasible for you, then this should be an alternative method for financing your startup… all you have to do is register on a P2P platform and apply for a loan. 

Loans offered through P2P lending varies according to the platform, however, the most common ranges are between $1,000-50,000, with some platforms such as Funding Circle offering as much as $500,000

Below is a list of some P2P platforms

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This article is divided into various parts, this is the second one… having read this one and the first one, you should have some insights on how to raise the capital needed to finance your startup. 

Depending on your needs you may consider any of the options discussed in this article, even better, you may utilize all of them. 

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