For small business owners, funding will always come in handy, but especially in the beginning. For many, how much seed money they secure will drastically impact the fate of their business.
To start out strong and keep growing, financial stability is going to be vital. The unmet need for more funding can become the one thing standing between entrepreneurs and their small business dreams, no matter how brilliant their ideas are. But that doesn’t have to be your fate.
First things first, familiarize yourself with the best funding options available to you. Here are seven smart ways to secure startup money, get your small business off the ground, and potentially leave traditional bank loans out of it.
If you’re determined to handle the finances alone from the start, you might be tempted to try “bootstrapping.” With this funding approach, entrepreneurs launch businesses while utilizing as little external capital as possible.
Those who build their business this way might receive a little outside funding, but the primary capital will come out of their personal finances, which may include selling assets, using credit cards, or dipping into a savings account.
Many who take this route use the revenue from the business once things have gotten going. To make this work, finding the most inexpensive ways to get things done is key. Once you’re making money, you’ll have very few people to pay back. If bootstrapping works in your favor, you’ll be able to move forward and grow your business without being weighed down by debt.
Some business owners say that without bootstrapping, they would have never been able to turn over a profit and grow as a company in their first year of operation. So while you’ll be running on a notably tight budget, it could pay off once your business is growing. However, for those without assets or rainy day savings, this route may not be a realistic option.
You’ve probably heard of sites like Indiegogo and Kickstarter by now. Crowdfunding platforms like these have gotten pretty popular in recent years, and more small business owners should be using them to their advantage.
If you need to secure capital for a business, service, or product, this is a simple and straightforward way to receive funding and start building your business with the help of others.
Shop around and find the platform that best suits your needs. On many crowdfunding sites, entrepreneurs and small business owners launch a 30-day fundraising campaign. During this time, they seek investors to help bring their unique vision to life, rather than turning to the bank. If this route appeals to you, check out the pros and cons of crowdfunding for your business, compliments of The Balance.
Generally, the greatest risk with crowdfunding is uncertainty. There’s no guarantee you will reach your goal. That’s why many small business owners have turned to crowdfunding as one of their main means for securing seed money–but not the only one.
Even before your business is truly off the ground, there are different ways to get the ball rolling. Pre-sales are just one of them. If you’re planning to sell products, offering items on pre-sale allows customers to pay for goods up-front.
Pre-sales are also a great way to gauge customer interest out the gate. Per Business News Daily, “pre-sales can act as a testing ground for new ideas and concepts for your business. It can also be a great way to build anticipation around a new product or service you’re releasing among an already loyal base.”
This funding angle can also help lessen some of the upfront costs of making your products. And as the business owner, you can use the money raised however you see fit. Unfortunately, this option rarely applies to a service-based business.
People That You Trust
Any loan transaction has an element of trust. If you haven’t turned to your friends or family, it might be worth consideration.
This potential source for startup money is often one of the most easily accessible options. On the flip side, we’ve all heard the argument that money and personal relationships don’t mix very well. And sure, the entire business could tank, and you’d become unable to pay back those helping you in a timely manner… or at all. Money matters can lead to problems in anyone’s personal life. That’s why it’s important to turn to the right people.
When approaching friends and family, it’s good for all involved to be clear about your vision, your business model, your repayment plan, and your timeline. But above all else, turn to people who truly have your back and want to see you succeed. There is no financial bind worth damaging trust between you and the people you care about. Make sure you are on the same page.
Invest in a Business Partner
Sometimes, two heads really are better than one. Never underestimate the power of working with a like-minded business partner. When you find the right fit, ask for what you need in exchange for equity in your company. Whether your partner is involved in day-to-day operations or a silent investor, they’ll need to be fully informed about every detail of the business plan.
In addition to writing your full agreement down, you may want to seek the assistance of a lawyer for good measure. Legal counsel can help you protect yourself, your blossoming business, and your new partner. Working with a partner is all about being on the same page, so you can’t leave any pertinent details about the business plan out. In the end, making all of your expectations and boundaries clear from the start will only work in everyone’s favor.
Look Into Small Business Grants and Loans
Do a little research today. In no time, you’ll find that small business grants and loans can come from a variety of sources. However, they all come with their own set of qualifying factors.
For instance, Government agency grants are known for having the most strict eligibility requirements, as they often focus on businesses that directly impact the community in a positive way or contribute to the greater good. There are also a ton of grants focused on helping specific types of nonprofits, including those run by women, veterans, and minorities.
The best thing about small business grants is that the money is basically free. So there’s no pressure whatsoever for repayment. The worst part is that not everyone starting a small business will be able to get their hands on a grant. Competition for grants can be fierce. Still, it’s always a low-risk route worth pursuing for anyone looking to start a small business. To help you get started, go to SBA.gov and see if you qualify for a SBA Loan.
Who wouldn’t want a wealthy investor to swoop in and happily fund a startup? In the world of securing funding, landing a benefactor can feel like an uncatchable catch. However, “angel investors” are out there. These affluent individuals or wealthy firms often make it their business to help out growing businesses financially.
The real trick is finding these potential investors. Start by browning the Angel Capital Association’s national directory. You may find a perfect fit. Once you found the right angel investor, brace yourself for an extensive interview process and come prepared. Be sure you can articulate all the ways in which your business will be financially viable and beneficial on a larger scale.
Venture capital is similar to having a benefactor. Generally, the main differences are the shorter waiting period and what is expected of the business owner.
Venture capitalists can provide sizable funding when a small business is still a seedling. While you may get your money faster, you will usually be asked for something significant in return. While an angel investor may be more of a mentor or completely uninvolved investor, venture capitalists are more interested in what’s in it for them, especially if they think you have a profitable idea on your hands.
Be prepared for their input. Not only will venture capitalists ask for equity in your company, but they may also request changes be made to your business model. Be open to positive and profitable change, but stand firm in your overall vision.
Take your time when deciding what’s truly best for you and your business. Don’t be dazzled by a big check if they want too much in return.
Why go to the bank to get a loan when you can secure one from home? If you’re in need of a loan and want to take the route less traveled, look into alternative lenders today. In recent years, they have become a trusted financing option, with more versatile options available all the time.
Some of the most popular alternative lending companies are Kabbage, OnDeck, and BlueVine. All three get high marks for being easy to use and dishing out the startup dollar bills in a more timely manner than most.
With any loan of this nature, you may be offered business lines of credit as well. Open lines of credit can go a long way when you’re just starting out. You’ll be free to use this money when and how you need it as you’re still figuring things out.
With this funding route, the downside is that the interest rates for loans like these are notoriously expensive. So do the math and decide what’s truly going to benefit you financially. And when in doubt, take full advantage of the aforementioned options that require less repayment first.