If you have a startup idea, you’ll most likely willing to put everything on the line to build your dream and create a product/service that solves a problem for people. Hence, many entrepreneurs won’t mind quitting their jobs, moving in with parents, and working 20 hours a day just to bring their ideas to life. However, the sad reality is that entrepreneurs often find it hard to obtain funding for startup ideas when the idea has not been proven to generate revenue.
Traditional financial institutions are low-risk takers and they are not likely to stick their necks out for an unproven idea in the startup scene. Nonetheless, the fact that traditional lenders don’t usually give out loans to startups doesn’t mean that startups cannot access loan facilities. This article provides insight into 5 proven ways through which you can raise funds for your startup idea even when it is in pre-revenue.
1. Personal Loan.
You can take a personal loan to fund your startup idea if you are willing to put your money where your mouth is. Personal loans often attract an APR between 5% and 20% depending on the circumstances of your loan application and your credit worthiness.
The great thing about taking personal loans is that the process is usually fast and you can obtain funding within one week of a successful application. Personal loans are especially good to fund a startup because they provide you with much needed capital even before you beta-test your idea or before you have any revenue. However, personal loans are often limited to $40,000 and you might not qualify if you don’t have a credit score above 650.
2. Home equity loans.
You can also fund your startup idea by taking a home equity loan if you have between 20% and 30% equity in your home. Home equity loans often attract low interest rates between 3% and 8% APR and repayment plan is usually spread out over many years.
Home equity loans provide entrepreneurs with more funding than personal loans because you can borrow as much as 90% on your home equity. You can also apply for home equity loans at your local bank. However, the main drawback of home equity loans is that you can lose your house if your startup idea fails and you are unable to repay the loan.
3. Credit Cards.
You can also max out your credit cards to raise funding for your startup idea if you believe that you have what it takes to build the next Tesla. Credit cards are a convenient source of funding because you can access the money on the go. More so, you’ll only need to pay interest on the amount of credit you use and you can enjoy promotional rewards and perks on the credit card. You can research and compare credit cards online; a great choice would be CreditLoan if you want information on the credit cards that might provide the best value to entrepreneurs.
The major drawback of credit card loans is that it has high interest rates between 10% and 20% APR and you might not qualify for a credit card if you don’t have a credit score above 650. More so, the amount of money you can get from credit cards is capped at your limit and you might not be able to use credit card for some expenses that requires cash.
4. Retirement savings.
If you have built a decent retirement egg nest before deciding to explore your creative side on the startup scene, your retirement savings could be great as startup funding. People who have a 401 (k) traditional IRA or other eligible retirement accounts funded with at least $50,000 can borrow as much as 100% of the retirement savings to fund a startup idea.
Rolling your retirement savings over to fund your startup is subject to a $5000 initial fee and a $1,500 annual fee. However, you won’t have to won’t have to worry about penalties on early withdrawals, you won’t have to worry about repaying a debt, and the use of the retirement savings won’t have an effect on your credit score. The inherent risk however is that you’ll be left without a nest egg if the startup idea doesn’t succeed.
You can also fund a startup idea in pre-revenue stage by crowdfunding. All you need to do is to join a crowdfunding site, tell people about your startup idea and convince a large number of people to contribute various amounts of money to invest in the business. The best thing about raising money through crowdfunding is that you don’t have to worry about interest rates or repaying a debt.
In addition, crowdfunding sites do not place a limit on how much money you can raise inasmuch as you have enough people willing to support your dream. However, many crowdfunding sites have all-or-nothing funding model and you might not get a dime if you do not reach your funding goal.