Are You Creating A Tech Startup? Here Are The 3 Best Ways To Fund It

For a small tech startup, finding business loans can often be a difficult project. With no business credit history, no proof of past revenue, and little working capital, it can be very difficult for lenders to judge whether or not a startup is a good investment. Many lenders will simply deny anyone that hasn't been in business for over six months.

Thankfully, there are a few ways that tech startups can get the capital they need to begin developing and growing their business. If you're forming a startup, read on to discover the best three options.

1. Microloans

With a small, dedicated staff and careful use of cloud hosting, it's often possible for tech startups to function on a very lean budget for at least the first few months. Microloans, which are loans that are generally under $20,000, are one way to secure enough capital to pay staff and hosting costs while you work on developing your product.

While they're not suitable for all tech startups—for example, developing medical devices would require more substantial research and development costs compared to creating a smartphone app—many tech businesses can use microloans to survive until revenue starts coming in. Microloans, due to their small size, are often easy to secure, even for startups with an unproven business record. Once you begin generating revenue and have a demonstrable business plan and product, you can begin to look at more traditional business loans.

2. Crowdfunding

Crowdfunding is a very popular option for tech startups, as it allows numerous people to contribute a small amount of money towards the product being developed. All of the contributions can add up to a significant amount of working capital for a tech startup.

However, crowdfunding typically only works well for a product that's generating large amounts of buzz on social media. You'll need to reach a large number of people in order to draw in enough to contribute to your startup, and the product needs to be something that catches people's attention. If you're starved for working capital, you may not have enough money to put towards the necessary marketing efforts.

3. Business Loans From an Online Lender

Online lenders are typically more willing to lend to tech startups than traditional banks. Some online lenders even began as tech startups themselves. Typically, this makes them better able to understand the tech industry compared to more traditional banks.

Even if you don't have a past history of generating revenue and are starting a fresh business, you can most often get a loan from an online lender if you can demonstrate that you have a good business plan and the skills necessary to enact it. Online lenders are also often willing to loan out considerably larger sums compared to the other two sources of funding a startup listed above, which makes them more suitable for tech companies who require a substantial amount of working capital to bring their product to fruition.

Overall, the best source of funding for your tech startup depends on your product as well as your funding needs. Microloans are suitable for companies who can operate on little capital until they can generate revenue, while crowdfunding is a good choice for startups with an eye-catching product that can generate buzz. However, most tech startups would be well-served to search for business loans from a lender—they can give you the working capital that you need to develop and market your product.