Finding cash for your new business venture may seem like a daunting task. With some high-profile startups boasting angel investment amounts in the millions, is it even likely that an unknown, fledgling business like yours can find funding to get off the ground?
The quick answer is yes, although it may take some ingenuity and flexibility to find the funds you need. The Small Business Association (SBA) recommends calculating exactly what you need to launch before opening your doors. Once that’s done, the following six ideas can help you meet your money goals.
Also known as “bootstrapping,” paying for the costs of a new business from your own savings is common, and sometimes expected. Some banks or financing organizations want to see that you’re personally committed to your business. One way to demonstrate this is to put personal capital into the business first. Educate yourself on the risks that come with putting personal assets into the mix, since there is a chance of not recovering them.
Crowdfunding is a popular funding option for startup businesses regardless of industry. It’s a measured way to achieve big funding goals through hundreds or even thousands of smaller investments from interested parties and potential customers. Crowdfunding is considered a peer-based funding source; backers don’t have to be formally-accredited investors to participate. Since crowdfunding requires a clear business plan and proven updates, it attracts goal-focused investors with an emotional or cultural connection to your product or service.
Peer-to-peer (P2P) lending is a way for people to lend and borrow directly from other people, similar to crowdfunding. Peer-to-peer lending has changed the landscape of startup and small business funding. Many of these loans are administered through business-specific platforms, but it’s also possible to use a “personal” P2P loan for a startup. Be aware of any rules or regulations of the lending platform and be upfront about how you’ll use the money. These loans provide an alternative to traditional banks and lending institutions.
As the name implies, microloans are a smaller version of business loans offered to high-performing companies with several years of profit or revenue. If you’re looking for money before you make your first sale, a microloan can offer a boost (anywhere from $2,000 to $50,000) without some of the requirements of a traditional line of credit. Microloans may have higher interest rates or shorter payment terms, so make sure you understand what’s required before you apply.
While not specifically marketed to businesses, a personal loan can help free up funds for an entrepreneur to further invest in his or her own business. These loans are usually unsecured and are typically smaller than business loans, but they also don’t require the level of collateral or documented profitability that corporate financing requires. As long as the terms of the loan allow you to use the money however you please, it’s fair game for investing in your business.
An additional option in the entrepreneur’s toolkit, business accelerators provide mentorship and financing. Startups must apply to be accepted, based on the promise they show in their preliminary business plans and sales forecasts. Once they are accepted, they often receive services like one-on-one coaching and financial support.
Many of today’s budding entrepreneurs mistakenly assume that business funding must be specifically branded toward a startup. However, funding of all kinds can be used for a business, and the SBA reports that business-specific loans and grants compose just a fraction of the funding sources today’s entrepreneurs rely on for expansion.
As your business grows, you’ll become eligible for more investment opportunities – including those geared toward successful, established startups. In the meantime, use your creative energy to take advantage of the various funding options available for both individuals and startup businesses today.