7 Ways to start a business without taking bank loans

Bank loans
Family and friends can offer lenient repayment terms. PHOTO/FILE
Starting a business and steering it to profitability requires financing which varies depending on the type and size of startup.

Contrary to popular belief, there is a multiplicity of funding sources for startups if you are creative enough to look in the right places.

Each source has its advantages and disadvantages; therefore you should weigh them against your needs to determine which one is best suited to your business.

The following are seven top funding possibilities for your startup.

1. Self-funding
Financing a startup solely from an entrepreneur’s personal finances is the best form of funding but can be difficult especially for capital intensive businesses. It is advantageous since you have full control of the business and you are not answerable to anyone for the decisions you make.

2. Family and friends
These are the people closest to you and are aware of your passion, dreams and efforts. They are your second best option after self-funding. Getting help from them is good since they have lenient repayment terms. However it can ruin relations if the business does not succeed and you are unable to repay the loan.

3. Angel investors
Angel investors are well-to-do personalities with a lot of experience in the industry who fund a startup in exchange for equity in the company. Besides funding they offer guidance in different stages of the business and provide connections to their network which promotes business growth.

4. Customers and suppliers
If your idea is innovative and people are very interested in your products some customers may be willing to pay for them in advance which enable you to utilize the money for production or purchase of stock. On the other hand, most suppliers are willing to sell their merchandise on credit which reduces the need for financing.

5. Purchase order financing
If you get an order from a reputable organization and you lack immediate working capital, most financial institutions and commercial lenders provide short term financial assistance based on verified local purchase orders. It is good for new businesses since financing is pegged on the creditworthiness of the company making the purchase.

READ: Kenya public debt hits Sh4 trillion

6. Crowd funding
This is a new way of funding a startup where an entrepreneur make pledges online for financial assistance from individuals who believe in the product or service they want to develop.

A large number of people give small amounts of money as donations or in exchange for small tokens such as branded t-shirts, caps or future discounts once the business is running.

Convincing a few thousand persons to support your project can translate to adequate funding for your business leaving you debt free and with 100 per cent equity.

7. Grants
Equity free funding in the form of grants are mostly offered by governments to young innovators in specified sectors to foster the entrepreneurial spirit and create more jobs. If your idea is revolutionary and has high potential for commercialization you can get 100 per cent funding.