After validating an idea that has been circling in your brain, an irrefutable belief that it has the potential to grow is a true test. The idea can be tested only when it is built and a minimum viable product or a prototype will do the job. Even if these factors are ignored, a minimal amount of capital investment is required to fund the startup objects. Most of the current start-ups are funded by the founders in the initial stage either through their own savings or from banking loans but what to do if you do not have savings and do not want to borrow a loan from the bank?

The Difference Between Traditional Business And Start-Ups

Traditional business often comes with predictable cash-flows which makes it possible to borrow bank loans for financing it as the bank will provide you with leverage that requires you not to dilute your shares in the business. Most of the time, traditional businesses provide a sure shot way to earn money in the long run. However, things are slightly different for the start-ups as it involves risk and therefore funding a start-up is also risky as you do not know whether you will make a profit or not just like any Lottery Sambad. If you borrow money from a bank for your business for your start-up, no matter whether you are experiencing profit or loss, the credit needs to be returned in a stipulated amount of time. Also, it is not a hush fact that the failure rates of startups are very high which makes it difficult for the founders to choose to pick money from the bank. This is one of the major reasons why founders prefer to bootstrap the company at the early stage. When one is running dry on the savings to fund the start-up, the only option left is to raise a fund. 

Will Angel Investors and Venture Capitals Fund Your Start-Up?

When raising funds for a start-up, one often looks up either to angel investors or venture capitals. The hard reality is that picking funds from them is not possible in the early stage. The simple reason being idea-stage start-ups are risky even for that which rules raising funds from an angel investor or venture capital as a viable option. Just like the outcome of a Teer Result, even the investors want to have solid proof that the business is doing good by having a solid proof and unfortunately, creating that proof requires money. 

It Is Okay To Borrow Money From Friends And Family 

If you do not have enough money in your savings account to fund the start-up or cover its needs and you have ruled out borrowing money from a bank or raising funds from investors, the only option left is borrowing money from friends or family. If you are lucky, you will find someone from your friend or family who has enough capital to support your venture. However, risking their hard-earned money needless to say is a tough call and requires thorough thinking. If you are thinking about borrowing money from friends or family, you will be relieved to know that many founders have followed this month. The popularity of raising funds in this fashion for the pre-seed investment is so popular that it has been called the FFF round (fools, friends and family) in the startup community. 

If someone is personally vested in your success, borrowing a certain sum of money should not be a problem. Yes, it involves risk but sometimes it is worth it and even if the money borrowed from your parents does not yield any returns, it can be considered as an investment in your personal growth. Borrowing money from parents should not prove to be much of a problem for their children because it can be used as a way to provide support for a child in need. Further, borrowing money from friends or family won’t force you to get a 10x return. The one downside is that if the lender does not understand the implication of the money that they have lent and they end up losing, it might cost you your relationships. This is, of course, a terrible situation to be in but everything in life requires risk and sometimes, a leap of faith can do wonders. If you are planning to borrow money from your friend or family for early-stage investment, it is best to explain to them the implications of it first and once you have the money use it to build your start-up and ensure that you return the money within a considerable time.