5 Good Sources of Funding for Start-up Businesses

Ready to expand your start-up business but need additional capital to get things going? Here are sources of funding that you can consider for your business and how you can get it.

Did you know that there are over 700 businesses that are classified as start-ups in the country today? Defined by the Department of Trade and Industry (DTI) as businesses that introduce “innovative products and create new business models that address changing societal and market needs,” start-ups have been increasing—not just in number, but in popularity these days, especially since the Philippines moves closer and closer to digitization.

That being said, it’s no surprise that many aspiring entrepreneurs and business owners want to start start-ups of their own while existing ones are gearing up for growth.

There is, however, a challenge for these businesses—securing funding. After all, money is essential in putting up a start-up business, maintaining it, and even growing it. But securing funding is easier said than done, given that banks require collateral—an asset used to secure a loan, which can take the form of property, equipment, or even inventory. And more often than not, budding business owners don’t have that.

To help out, we put together a list of alternative funding options that entrepreneurs can consider in order to grow their start-up businesses.

5 Sources of Funding for Start-up Businesses

1. Angel Investors

First on our list are private investors. Known as angel investors, Startups.com describe them as people who are “typically high net worth individuals who look to put relatively small amounts of money into startups—ranging from a few thousand dollars to as much as a million dollars.”

Angel investors are usually sought for early-stage capital. However, entrepreneurs who are interested in seeking this type of funding should be aware that there is a catch. According to The Hartford, angel investors usually offer funding in exchange for a stake in your business. 

If this trade-off is something you find worth taking, working with angel investors has its advantages. “The most beneficial aspect to working with an angel investor is that they can usually make an investment decision on their own,” Startups.com points out. “Not having to manage a partnership or corporate hierarchy of decision-making allows the angel investor to make bets that they feel comfortable with personally.” 

Startups.com likewise notes that angel investors usually have subject matter expertise, which will be useful for entrepreneurs as they navigate the starting stages of growing their businesses. 

2. Business Loans

One of the more straightforward options when it comes to funding is applying for a business loan. Banks here in the Philippines offer different kinds of business loans and entrepreneurs will be able to pick which one suits them best. There are even bank loans that are geared specifically towards MSMEs

However, entrepreneurs should make it a point to know their credit history first before applying for a business loan. It is also important to take the time and research thoroughly about the different bank loans that you are considering. Since there are some bank loans that require collateral, as well as other conditions for loaning money, you should pick the most feasible choice—one that works well with your financial situation. 

3. Crowdfunding 

Next up on the list is crowdfunding, which is defined by Forbes as “the practice of raising funding through multiple funders, often via popular crowdfunding websites.” Examples include GoFundMe, Indiegogo, and Kickstarter. 

Aside from the novelty and appeal of your product, what fuels a crowdfunding campaign is the story. Whether it’s about you, your business, or your product, there needs to be a story that hooks the people in and makes them want to donate to your business. 

While setting up a crowdfunding campaign is not difficult, entrepreneurs who are considering this should keep in mind that people who donate typically expect something in return, such as a reward or even a percentage of equity or profit share. 

4. Series Funding

Start-up entrepreneurs can tap into what is known as series funding. According to Startups.com, series funding happens “when a startup raises rounds of funds—each one higher than the next and each one increasing the value of the business.” Each round is described alphabetically, starting with Series A and ending with Series E. 

Seed funding, which is “generally used to carry out the business strategy of the startup, designed to grow the company,” precedes Series A funding. And by the very name itself, Series A is the first step and usually involves venture capital firms, equity crowdfunding, and even angel investors. 

“Series A is a point at which many startups tend to fail,” Startups.com cautions. “In a phenomenon known as ‘Series A crunch,’ even startups that are successful with their seed round often have trouble securing a Series A round.

Very few companies make it all the way to Series E. Those that do, however, are the ones who typically want to stay private a lot longer, still need assistance before going public, or have failed to meet expectations altogether. 

5. Venture Capital

Last and certainly not least, entrepreneurs can also consider venture capital for their start-up funding. Startups.com defines it as “funding that’s invested in startups and small businesses that are usually high risk, but also have the potential for exponential growth.”

While this may sound like good news for many start-up business owners, Forbes points out that it is not easy to acquire funding from venture capital financing, as there are criteria that start-ups usually have to meet. For example, a start-up must show some traction and high growth potential—even before venture capital firms even show any interest in financing. 

However, there is potential for exponential growth should a start-up be funded by a venture capital firm because the amount of money invested is very large. That being said, it is a good option for companies that are looking to scale big.

What to Keep in Mind When Looking for Funding

Given all the options for funding, entrepreneurs should consider all the pros and cons of each option before choosing which one to go for. After all, just as not all businesses are built the same, so are the available funding options out there. Plus, funding is a two-way street, meaning there is some give and take needed, thus making it crucial to study which best fits the business in order to avoid any negative fallout. 

Once a type of funding is selected, it is likewise crucial to be transparent and honest regarding the business’s financial situation, along with other important information that can make or break your chances of getting funding. Highlight what makes your start-up worthy of the additional funding without exaggerating information, forecast realistically, and make sure to deliver on any promises that you make.