How to Get Financing as a Young Entrepreneur
Business Loan from an Alternative Lender
To start, you should consider applying for a business loan from an experienced lender. Most lenders have diverse funding amounts and terms, so you can likely receive an offer that is tailored to your business’s needs.
One thing to consider, though, is that some lenders do not work with businesses until they have been up-and-running for a certain length of time. So, if you have recently started your business, this might not be the right option for you just yet. If you’re serious about receiving a business loan for an alternative lender, research their qualifications so that you are certain that you’ll qualify.
Some of the best ways to get financing as a young entrepreneur involve Internet-based opportunities, such as crowdfunding. Crowdfunding is a financing method in which donors contribute various amounts for causes, ranging from charity fundraisers to emerging small businesses.
Crowdfunding platforms include sites like Indiegogo and GoFundMe, but Kickstarter is the most famous platform. Since it’s 2009 inception, over 13 million backers have contributed to more than 133,00 projects, and those numbers continue to grow each day. Your business could be next!
Crowdfunding can be a great way for young entrepreneurs to receive financing, but it’s not an automatic win. Before you pursue crowdfunding, you should ensure that you have crafted a compelling campaign that will entice people to donate. For instance, you should consider offering rewards or equity in the company to backers who donate a certain amount of money. You could also highlight any well-known investors that your business has already recruited, and share your overall vision for your business.
Asking Family and Friends
There are many ways to obtain financing, including asking friends and family for help. In fact, Steve Ells built Chipotle with a large loan from his father.
This is a resource that young entrepreneurs should consider, as family and friends likely won’t be too strict about the repayment process. Still, there are certain ramifications that you should consider prior to asking your loved ones for money. Borrowing money for your business from family and friends could create an awkward situation, especially if you cannot repay your debts. The last thing you’d want is to tarnish important relationships.
In addition, you should be mindful of the role a sponsor could have in your business. For instance, if you’re starting a real estate business and your uncle is a broker, his knowledge of the industry could excel your startup. Instead of debt, knowledgeable sponsors could finance your business, in exchange for equity in your firm. This would be an especially beneficial situation if you’re interested in gaining a competent mentor, in addition to business financing.
Another option that young entrepreneurs have is seeking an angel investor. Angel Investors and Venture Capitals have similarities, but angel investors are usually individuals, not groups. Angel Investors are typically former doctors, lawyers and even successful entrepreneurs ready to build next-generation businesses.
Angel Investors are considered Accredited Investors, meaning that they have a $1 million net worth and income of at least $200,000. They can greatly accelerate your business, but sometimes at a price. These investors often have high expectations, and can demand up to a 50 percent stake in your business. Due to this, they would have a say in certain operational aspects of your business. So, if your goal is to remain independent, this might not be the best decision.
Grants for University Students
Many young entrepreneurs are either recent graduates, or still pursuing degrees. College can be a great time to start a business, as many universities have business plan competitions that result in cash prizes. Even if you don’t win the grand prize, these competitions can give you the opportunity to practice your pitch and network within your industry.
It can seem challenging to receive quality financing, especially as a debt laden, cash strapped young entrepreneur. Luckily, with thorough planning and research, your business can likely attain financing. Before you know it, you’ll be a seasoned entrepreneur, hopefully investing in the visions of up-and-coming entrepreneurs!
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.