Traditional And Non-traditional Sources Of Funding For Entrepreneurs

Traditional And Non-traditional Sources Of Funding For Entrepreneurs

Today’s generation is moving towards to idea of starting their business rather than following the standard tradition of working 9-5 in an MNC. It is the reason why you can see a lot of “under30” successful entrepreneurs today while there are many broken ones also! There are several reasons such as lack of funding, lack of research, and poor marketing strategies, etc. due to which the majority of the entrepreneurs fail in their first attempt to making business.

Several surveys have revealed that the majority of the people doing a regular 9-5 job do not love their job and they only do it for the sake of money. These people are the same which have a desire to become an entrepreneur and start up their own business but cannot do so due to lack of funds.

Funding is the critical ingredient of business, and you cannot think of starting a business if you do not have adequate capital. However getting a loan today is not difficult today as it was earlier. Many banks, other financial institutions and even government of several countries offer loan for business start-ups. The start-up capital can be either a combination of owned and borrowed funds, only borrowed funds or just held funds, but you can rarely find a business which has all the owned capital invested in it.

Majority of start-ups are however dependent on borrowed money.

The following are few the traditional and non-traditional sources of funding for entrepreneurs:

Traditional Sources

Raising Funds from Self and Family Savings

Raising Funds from Self and Family Savings

It is one of the primary things which every entrepreneur does at the initial level. To make capital for his business the first thing what an entrepreneur is, to sum up, the self-savings, family savings or borrowed money from friends and relatives and turn the same into business capital. At the initial level, it is the best option, but self-funding can only work if it is a small scale business in huge or colossal business investment self-funds can undoubtedly contribute but cannot add up to the whole business capital.

Taking Loans from the Bank and Other Financial Institutions

Taking Loans from the Bank and Other Financial Institutions

If you do not have adequate capital to fund your business banks are the best places which can provide entrepreneur start-up business loans. Limited banks offered earlier start-up loans, but today almost all local or private banks offer these loans. Today in many countries government bodies also provide start-up loans to an entrepreneur to motivate new entrepreneurs and many a times government sanctioned loan also have fewer interest rates and easy application process.

Winning Various Entrepreneur Contest or Competitions


In almost every major city of the world government or private bodies are looking out for new talent, business opportunities, new products, and inventions, etc.; due to which they organize various contest for new entrepreneurs. In this contests, you have to develop a product or a business plan, and if your product stands out, then you will be awarded financial gains and also get some free publicity from the organizers.

Borrowing Funds from Non-Banking Financial Institutions & Microfinance Institutions

Borrowing Funds from Non-Banking Financial Institutions & Microfinance Institutions

If the entrepreneur fails to get a loan from banks and other financial bodies they always have an option to apply for investment in these non-banking institutions. In these institutions, they do not have a minimum credit score or strict document requirements like professional banks. Such institutions favour most to an entrepreneur whose financial rating is not accepted by banks.

Credit Cards


Plastic money is used by many people today all over the world to satisfy their urgent fund requirements. The same can be used by entrepreneurs to add on to the necessary start-up capital. Credit cards are however limited to a certain amount depending upon your credit score and income. Also, the rate of interest on credit cards may be comparatively very high. So be sure before you use credit card money as your business capital.

Non-traditional ways

Crowdfunding

Crowdfunding

It is one of the modern approaches to raise funds from the public. Crowdfunding is a social platform wherein there are a group of investors who invest in a new entrepreneurs business if they like the idea or the business plan. For this the entrepreneur needs to share his business plan in details to the funders, and also the program should be highly convincing as there are several new entrepreneurs on such platforms and your business plan must be outstanding to grab the investor’s attention.

Personal loan or online start-up loan: today with the growth of online business sector there are several websites which offer entrepreneurs private start-up loans. Liberty Lending is one of the leading sites which provide these services. Entrepreneurs these days are not just dependent on banks for their business loans.

Angel Investor

Angel Investor

The term itself gives you an idea about what it is! Angel investors can be referred to as investors who have significant capital but do not have a suitable business plan, and they are continuously in search of people with a good business plan or great entrepreneurs. If they like and believe in a business model of an entrepreneur, then they invest in the same with a motive of gaining profit. Many times these angel investors may also approach an entrepreneur in a group to select the best business plan for investment.

Gaining Investment from Business Accelerators and Incubators

Gaining Investment from Business Accelerators and Incubators

Business incubators and accelerators are both investors, but they play different roles. Incubators are investors that not only provide financial help but they also give different business advice to the entrepreneurs and guide them step by step. On the other hand, accelerators believe in investment and good quick returns.

Conclusion

It is not a difficult task to raise money for new entrepreneurs today as there are several traditional and modern means of generating a business capital. The primary function is to manage the funds and make the right use of it. Also, choosing the right sources of fundraising is equally essential as the wrong choice in fundraising sources can lead to high debts in future and may even lead to bankruptcy in worst cases.