Startup Funding Challenges and How to Overcome Them 

Finding adequate funding is one of the biggest challenges startups face when they are trying to establish themselves. To make matters worse, the coronavirus pandemic has shaken the business world to the core, and getting funding has become even harder. Seeing how fragile the ties that bind our economy are, many investors have become risk averse. Of course, it’s impossible to generalize, as there are industries and businesses (delivery services, for example) that have experienced a boom during the worldwide lockdowns.

The ability to withstand disruption will be a major selling point for any business that needs to secure funding, which can be hard to prove for freshly-minted entrepreneurs. Banks and other traditional lending institutions may be reluctant to entrust you with the funding you need if they deem you lack the necessary experience to get it off the ground. Having said that, there are still numerous ways for startups to overcome the funding challenges they face. While the pandemic has closed many doors, it has opened many others, and there are new opportunities around every corner.

So, to help you on the journey of fulfilling your dreams and starting your own successful business, today we are going to take a look at the funding challenges startups face and some good ways to overcome them. 

Infographic created by
Donnelley Financial Solutions, an SEC reporting software
company

Form realistic expectations

The best place to start securing the funding you need is going to be by trying to figure out just how much money you will require to get your business off the ground. There are many costs and difficulties in running a business that you may not have anticipated, which is why doing thorough research and articulating it into your business plan is an integral part of the whole process. On top of this, having a well-made business plan should also help you attract any future investors as it will show that you are very much dedicated to the goal of seeing your business succeed. 

A common mistake people tend to make here is undervaluing the amount of money they are going to need. It’s always safer to assume that unexpected costs will arise, and to get more rather than less, as running out of funding can be one of the biggest disasters your young business can face.

Apply for free grants

A good place to start when trying to fund your startup is by looking into any potential small business grants your organizations are providing. Grants are financial assistance from various governmental and non-governmental organizations that can be a great boost for your startup as they don’t need to be paid back. In other words, applying for grants won’t really cost you anything other than the small amount of time you will need to fill out the application form. So, if you have an option to apply for a grant, don’t miss your chance.

Apply for a loan

While the lack of previous experience in running a business may deter most lenders from your business, there still are those who will be willing to consider getting you the funding you need. And while most people associate loans with banks, there are many other businesses that can offer you a personal loan with good terms that can get you started. 

While there are downsides of running up your debt from the start, if you are able to plan ahead and be responsible, loans could be the safest bet you have when funding your startup. Additionally, they’re one of the few options you have if you wish to keep complete control over where your business is headed.

Look for angel investors

Looking for funding through outside capital, more specifically angel investors, is the preferred way to go for many small businesses, especially if they have a great idea behind them. The great thing about angel investors is that unlike loans, their investments don’t need to be paid back, giving your business a better prospect for future growth. However, the downside is that this form of funding does require you to give up a part of your ownership over the company, which is why it may not be the best option if you have a clear vision of where you want to take your business.

Crowdfund your startup

Crowdfunding is an interesting approach to funding a business venture that has gained a lot of attention in recent years. In essence, it allows you to go to the internet with your business idea and get financed through many individual payments from people all over the world. 

Depending on the type of crowdfunding, in exchange for their payments, you can give these people early access to your product(s) or small tokens of appreciation. In some cases, these donations don’t need to be repaid in any way, as the people just want to see your business succeed. However, while crowdfunding has the potential to be an amazing funding option, most people won’t be willing to give you their money unless your business idea truly is unique and draws their attention. 

Final words

Overcoming the challenge of funding your startup is one of the hardest parts of launching it, but don’t be overeager. Jumping at the first offer you get can be a bad move. If you make a bad funding deal, you can end up with your startup taken away from you or having to shut it down because of financial burdens that are impossible to meet. That will hurt a lot more than waiting for a few months more or not starting it in the first place.

In addition, factor in the changing circumstances and try to secure an emergency fund. The pandemic isn’t over yet. And if it has taught us anything, it’s that circumstances can change in a blink of the eye, and we need to be prepared for that.