5 Biggest Funding Challenges Faced By Young Entrepreneurs & How To Overcome Them

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According to a recent report by BNP Paribas that covered over 3,000 entrepreneurs across 18 countries, the portrait of the average entrepreneur is radically different compared to several decades ago.

If entrepreneurs from past generations took a conservative approach to entrepreneurship and waited until they were at least in their 40s to start their own business, today’s entrepreneurs start young.

According to the report, Millennials are more entrepreneurial than ever, and they own an average of 7.7 companies, compared to Baby Boomers, who own an average of 3.5 companies.

There are many reasons why people decide to pursue the path of entrepreneurship: the barriers to entry are lower than ever, entrepreneurs have easy access to managerial resources, and the market itself is very open towards bold and innovative ideas.

But while studies like this one may give the idea that entrepreneurship is smooth sailing for Millennials, the truth is that young people have more opportunities but also more challenges.

On the one hand, young entrepreneurs do indeed have more access to quality business education. But, on the other hand, funding can be a real problem.

5 Biggest Funding Challenges Faced By Young Entrepreneurs

Biggest Funding Challenges Faced By Young Entrepreneurs

Unlike past generations, young entrepreneurs face many financial barriers:

1# Debt

At the time of starting their companies, many young entrepreneurs are still struggling to pay student debt.

2# Not Enough Contacts in the Business

When starting a business in your 20s or 30s, you don’t have too much networking experience, which can make it hard to find funding.

3# Poor or No Credit History

Many banks and conventional lenders still use credit history when establishing whether or not an applicant will receive funding. Unfortunately, that’s not fair for those who don’t have any credit history or are going through a difficult time.

4# Little Credibility Because of Their Age

Oftentimes, young entrepreneurs seek funding from conventional lenders or senior investors who disregard them because of their age.

5# Lack of Savings

People who start a business in their 20s don’t usually have time to set up a big savings account. Without this safety net, it can be difficult to finance a business while at the same time paying off student debt and covering personal expenses.

Unfortunately, there are countless examples of amazing, fresh-thinking, disruptive startups that got a lot of coverage for being “the next big thing,” but if we look them up today, we’ll see that most of them failed to secure the second round of funding or that they had too many losses.

These challenges will continue to exist for a while, so what can young entrepreneurs do to manage funding hurdles and manage to grow their businesses beyond the infamous first year?

4 Ways To Overcome Funding Challenges

4 Financial Mistakes Startups Usually Make
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1. Think of The Right Business Model

As brilliant as your product might be, it’s the business model that does most of the selling, at least for investors. And this is where you need to be flexible, weigh all your options, and possibly even consider pivoting.

If you’re trying to copy what a competitor is doing without checking if it applies to you too, your idea might not work and, unless you prove to potential investors that you can generate positive cash flow, it will be harder to get funding.

At the end of the day, investors want to see numbers, and without a solid business plan and a realistic business model, your pitch will not be very convincing.

2. Think Outside The Box When Looking For Business Loans

Many young entrepreneurs were taught to believe that banks are the best source of financing, but that’s no longer valid today. In the age of FinTech, searching for any kind of loan, including business, doesn’t have to involve trips to the bank because you can easily compare lenders online.

What’s more, you are no longer restricted to conventional lenders such as banks because you can also get loans from Fintech lenders who have more flexible lending criteria and are less skeptical of young entrepreneurs. You’re even able to find instant loans canada, which will give you the funds you need, well… instantly.

If you don’t like either of these options, crowdfunding may be a great alternative, but keep in mind that it doesn’t work for all business ideas.

3. Know How To “Sell” Your Business To Investors

If you haven’t mastered the art of the elevator pitch, you should. Not because you’ll bump into Warren Buffet at a trade show, but because there will be times when you’ll need to describe your business model to an investor in five minutes, and you’ll need to be persuasive.

As an executive, you’re the one who should know every facet of your business by heart and answer every trick question the investor throws at you. You’ll need to know all the numbers and be aware of all your opportunities and threats. At the same time, you need to have the right attitude.

4. Spend Your Funding Money Wisely

After you manage to secure your first round of funding or get a business loan, it’s normal to be excited and feel that everything is possible. But after a few days of celebration, it’s time to get back to work and move to an even trickier part: how to spend that money wisely.

More often than not, you need to reach a balance between the things that you need for business development and the ones that boost morale.

For example, it’s normal to use the funding to get better computers and invest in office improvements, getting everyone the latest iMac might not be such a good idea (unless they need that specific computer to work optimally).

Also, you should know that there is such a thing as too much funding, as surprising as that might seem. This is a common problem, especially for startups that get a lot of good press in the beginning and are valued for millions of dollars because that creates a lot of expectations.

If the company doesn’t manage to live up to those expectations or fails to expand fast enough, that will make it harder to secure the second round of funding and maintain credibility.

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Author: Bogdan Butoi

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