Entrepreneurship doesn’t stop at coming up with a business idea. Among one of the challenges any entrepreneur must tackle is the question of funding. 

There’s no denying it – every firm will require some type of funding to get started, stay afloat, or expand.

Sure, self-funding is a valid option for getting operations off the ground. Self-funding comes with its own perks – you know what you’re getting, there’s arguably less paperwork and less payback pressure.

However, it’s useful to go over all possible alternatives before you make that choice. Depending on your circumstances, there may be an option out there that’s more suitable.

#1. Personal Loan

Although a personal loan may not be the first thing that springs to mind when thinking of “business funding,” it can be a fantastic method to get small amounts of money quickly. This makes it ideal for microbusinesses that do not require a large amount of money, such as a home-based bakery or a food truck.

You’ll need a good credit score and a history of consistent income to qualify for a personal loan.

These loans are typically less difficult to obtain than business loans, which may require your company to have been in existence for several years. Some loans also disburse payments within one business day, which is convenient for meeting unexpected expenses.

Personal loans, on the other hand, have a smaller financing ceiling of between RM50,000 and RM200,000, depending on your income. They also have higher interest rates than business loans in general. Furthermore, obtaining a personal loan may be more difficult if you are self-employed.

#2. Business Loan

Business loans can help you obtain large sums of money ranging from RM10,000 to millions of ringgits, depending on your business operations and whether or not you have any collateral to pledge. They also offer interest rates of roughly 5% to 7% p.a., which are often lower than personal loan interest rates, which can be as high as 18% p.a.

Business loans are a little more difficult to secure compared to personal loans. A certain number of years of experience may be required. To be eligible for larger sums of funding, you may need to put up collateral. Furthermore, the cash you receive may be subject to restrictions, such as not being able to use them to buy stocks or real estate.

#3. Grants and Schemes

Government or corporate programmes can provide low-interest (or no-interest) loans, grants, mentorship, and networking opportunities. Each financing programme, however, has its own set of eligibility restrictions.

Some programmes are exclusively available to specific firms or populations (e.g., those wishing to improve their digital capabilities) (e.g., if you are a female entrepreneur or a Bumiputera applicant). Furthermore, some grants are competitive, requiring multiple rounds of examination before being accepted.

#4. Crowdfunding

Crowdfunding is a method of raising funds from a large number of individual investors. Crowdfunding comes in a variety of forms, including:

  • Rewards-based crowdfunding:  This model can be found on international crowdfunding platforms such as Kickstarter and Indiegogo. In exchange for tiers of non-monetary rewards, users pledge money to other people or businesses.
  • Donation-based crowdfunding: Users can support charitable causes or local entrepreneurs on sites like GoFundMe without expecting anything in return.
  • Equity crowdfunding: Individuals invest in businesses in exchange for a portion of the company’s ownership or earnings. Crowdo, pitchIN, and Leet Capital are three equity crowdfunding platforms in Malaysia.

Because the qualifying rules for bank loans and grants may not be as severe, crowdfunding may be a more efficient way to raise funds. Platforms that are based on rewards or donations may not even require any prior business experience.

However, if you don’t meet the target fundraising, some platforms will not disburse any funds, even though you’ve invested time, money, and effort into constructing your campaign.

#5. P2P Lending

Debt-based crowdfunding, also known as peer-to-peer (P2P) lending, occurs when a group of investors combine their funds to lend to a company.

If you don’t qualify for a bank loan, P2P loans can be a good alternative because they have fewer financial and operational criteria. They can also provide speedy financing — if you’re borrowing less than RM100,000, your application might be finalised in a matter of days.

However, expect increasing interest rates. Because investors demand bigger returns in exchange for taking on more risk, P2P platforms offer higher interest rates (up to roughly 18% p.a.) than banks (around 5% to 7% p.a.). This is in addition to the fees levied by the P2P platforms, which may be a percentage of your loan amount.

#6. Venture Capital and Angel Investors

Firms or individuals who invest in enterprises with strong development potential are known as venture capitalists. Their funds come from a variety of sources, including people and corporations.

An angel investor, on the other hand, is a high-net-worth individual who invests their own money in early-stage businesses.

Angel investors and venture capitalists can be extremely valuable to small businesses. They can provide big sums of money as well as mentorship and networking possibilities. If your business fails, you might not have to pay anything back.

These possibilities, however, are usually competitive. You’ll have to show that your company or business idea can grow over time.

If you are successful in obtaining money, venture capitalists or angel investors will demand equity or convertible debt (debt that can be converted to equity later) in exchange for their investment. They may also want to be engaged in how you manage your firm, which means you may have to give up some control.

Conclusion

Finding cash to fund your operations is very important for any entrepreneur. It’s important to consider all your options and base your decision on circumstances. If the above list doesn’t suit you, you can always still consider self-funding your business.

 

Which option would you go for and why? Share your thoughts with us in the comments below.

 

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