Many small businesses require funding at different stages in order to grow their business or sustain operations. After thoroughly planning out how your business intends to utilize these funds, you next need to find the best way for your business to acquire funding, which can be easier said than done. There are many methods out there to get funding for your small business. Here are some of the top ways to get funding for your small business, recommended by leading voices in the business community.
Business Credit
If you need funding for your small business, you can get a line of credit exclusively for the business. As long as your business is established, registered, has sufficient cash flow, and you have an acceptable personal credit score, you can receive a line of credit that allows you to borrow funds intended for your business operations. You can get credit cards and loans using this line of credit, and as you repay what you borrow, credit and lending amounts increase while interest rates drop. The best way to get business credit is to apply at a bank or other financial institution.
-Lev Berlin, Founder of Recipal
Small Business Grants
Several organizations offer small business grants, which are a great option. Keep in mind, though, that the process of obtaining a small business grant is not simple by any means. Often, the grants have specific criteria you or your business must meet to qualify for funding. If you qualify and your application is approved, grants are a much better option than loans. While loans may provide higher payouts, you have to pay them back – usually with high-interest rates. The money you receive from a grant is yours, and you can use it to fund your business without the stress of repaying it. You can find small business grant opportunities at https://www.thegrantportal.com/ and get to funding your business off the ground!
– Hilary Kozak, Vice President of Marketing at LivSmooth
Use Crowdfunding
Crowdfunding is a great method to gain some extra funding for your small business. Sites like GoFundMe are extremely popular for people looking to reach a certain amount of money for their personal or business endeavors. These sites allow anyone to give money and help you to reach your goal. Crowdfunding is not the same as investing and usually, the people funding your business don’t get anything in return, so the best way to get people to fund your business is to get people excited about it. Be clear and explain what makes your business different to get more support.
– Brandon Brown, CEO at Grin
Retirement Accounts
One of the most tax-efficient ways to fund your small business is to use your Retirement Account. Not many people know that retirement accounts can be a great way to finance a small business. Before you dip into your retirement savings to fund your small business as a sole proprietor, it’s important to understand how this could affect your taxes. There are three primary funding options for small businesses: IRA, 401(k) Plan loans, and ROBS. Each option has benefits and drawbacks that depend on factors such as the amount of money required, where the funding will come from, and the age of the business owner. Carefully consider all relevant information before deciding which option is best for your small business.
– Daniel Ward, Editor at Invoice2go
Use a Microloans
“Most small businesses don’t have much money to invest, which is why traditional lending institutions deny them loans. But for entrepreneurs, there is a way to start a business even with no money. It is called microloans. Microloans are small business loans given by the government or non-profit organizations. The requirements are very simple; you need a good business idea, and you need to have a great credit record. In these loans, the individual completes the application and is considered for the loan. The funds are deposited directly into the business’s bank account. Microloans are becoming more popular since they are easy to apply for.”
– Matt Gehring, Head of Marketing at Dutch
Family and Friends Loans
“One of the easiest ways to receive funding for your small business may be to seek support from your friends and family. These people are the ones who already trust you and save you the risk of being tied to an actual investor. It’s a good idea to be clear about whether you’re looking for a loan or offering them a stake in your company. Be sure to let them know how much you can pay in interest and how you plan to repay the debt. No matter what, you should still handle any loans and funding you receive from your family and friends with care and professionalism to ensure that you retain trust and your personal relationships with them.
– Bill Lyons, CEO of Griffin Funding
Angel Investors
An angel investor is someone who provides funding to companies that they believe will prosper, expecting that they will take a share in its financial success. An angel typically also provides advice and experience that will help grow the business. You need to give them continuous details of your small business’s finances and business plans so they know that their investment is worth their time and money. It’s important to also make it clear how involved you expect your angel investor to be in your business’s decisions – are they going to have a part in all decisions or only those that involve money? Will they have the option to cash out if they want to?
– Jacob Dayan, Co-founder of Community Tax
Home Equity Loans
“If you are a homeowner looking to start a business, a home equity loan might be the right choice for you as you look for sources of funding for your new venture. Through them you are able to use the equity you’ve built from owning your property into cash, though this option is not without risk as well. Home equity loans are easy to obtain compared to other loan types like personal loans, with lower interest rates and longer repayment periods. However, as you are putting your home up for collateral, you risk having your lender foreclose on it, which is not a concern with other loan types. Additionally, you cannot get a home equity loan if you lack a home or have built up very little equity. Carefully consider whether this is an avenue worth pursuing when you assess potential sources of funding for your business.”
– Adrien Dissous, Global SVP of Marketing at Babo Botanicals
Apply For a Government Grant
“Government grants are a great way to obtain funds to start your small business off right, but you will need to do some research to see which specific grant would be most beneficial to you. The SBA, or Small Business Administration, has offices called Small Business Development Centers all throughout the U.S. that can coach you on available grants along with providing business consulting and training! One great website to start looking for government grants is Grants.gov which provides information on more than 1,000 federal grant programs you could apply to. Some small business grants are available to businesses/entrepreneurs that face certain challenges, such as Women Business Centers which provide insight on local, state, and private loans for women that are economically and socially disadvantaged. Another small business grant called the 8(a) Business Development program helps small businesses that are located in economically disadvantaged areas.”
– Chris Hunter, Director of Customer Relations at Service Titan
Bootstrapping
“While this may not be the most popular and realistic option for most business owners, bootstrapping is still one of the most common ways to get funding for small businesses. Simply put, bootstrapping is when you use your own resources and funds to run your business. Personal savings, low or no interest credit cards, mortgages, and lines of credit on your home are common means of providing your small business with funding, whether you’re just starting up or have been in the market for a while now. One great tip regarding bootstrapping is to get a free credit report card that can help you assess where you stand financially and give you insight on your future finances. Getting a free credit report card will also help you figure out the interest rate you will get on loans, which can give you access to affordable credit!”
– Amy Adlerstein, Senior Retention Marketing Manager at Canvas People
Seed Accelerators
Y Combinator is one example of a seed accelerator that hosts a competition for start-ups and small businesses. Small business owners can take advantage of the capital that they provide in exchange for a percent ownership of the company/business. If you anticipate your small business going public at some point, this may not be worth the trade because it could end up more expensive in the long run. However, if you’re just starting out or haven’t owned a business before this could be the boost you need because not only will you be receiving funding for your business but you also get the expertise from a company that specializes in funding successful startups. Air BnB is just one example of a company that took this route and now they’re a household name.
– Sacha Ferrandi, CEO and Co-founder at Source Capital
Venture Capital Funding
Another way of getting funding for your small business is through venture capital investments. Venture capital has a few differences from other forms of funding, which makes it a little more unique. Investors are always looking for something in return for their investment, and in the case of venture capital, investors will usually be more interested in having a portion of ownership of the business. Since venture capitalists will typically be long-term investors, it is ideal for them to be more involved in your business. While it can be good to have a consistent investor you can trust, you will have to negotiate exactly how much control they will have over your business and if it is worth it in return for their funding.
-David Ring, Senior Marketing Manager at MCT
Peer-to-peer lending
“Peer to peer lending is a form of funding that allows small businesses to connect directly with investors. It is much easier to explain a business concept to peers than it is to explain it to a bank. There are many great websites where small businesses can find lenders that align with their terms and transactions. The great thing about peer-to-peer lending is you get to decide what kind of interest rate you are looking for depending on the risk. Sites like Upstart and Lending Club are easy ways to quickly fund your small business with the right investors!”
- Jeffery Pitrak, Marketing and Account Manager at Transient Specialists
Pitch Competitions
“One of the most fun ways to acquire new business capital is entering pitch competitions. Many have heard of the show Shark Tank which is a great example of a pitch competition. There are events throughout the year where small businesses can present their business to a variety of different investors. Whether your business is just a start-up or already established, there is competition for you throughout every industry. Although they can be nerve-racking for the entrepreneur, they can prove to be extremely valuable in gaining investment capital. In addition, pitch competitions are a great way to make new business connections that can be helpful in the long run!”
-Todd Jensen, Head of Marketing at Nursa
Crunch the numbers
Before reaching out to potential investors, it is incredibly important to have a game plan as to how much money you really need for your small business. Investors are more inclined to invest in your business if they have a comprehensive breakdown of how much money they will need to invest into your business. While getting your numbers together is never an easy task, it will make the process of funding a lot less of a hassle. Investors will want to take a chance on your business more when everything is laid out. This will also instill confidence in you and the confidence you have in your business to succeed.
-Adrian Pereira, CEO & Founder of Eco Pea Co.
The most important thing when it comes to acquiring funding for your small business is to find the right option for your specific business and your specific needs. Each option has its own pros and cons that should be taken into account prior to sending out initial applications. This process can seem daunting at first, but with the right amount of research and careful consideration, your business can thrive with the right source of funding.
Go to Conventions with your Product
There are specialized conventions for each niche of products, and that is where your target audience is if you are looking for investors. Make sure you show up with a prepared business plan, marketing materials and a PowerPoint presentation prepared. If you can afford it, get a booth demonstrating your product or service. Prepare your balance sheet, and think as they do on Shark tank. Have your pitch solidified and talking points ready to refer back to when questions come up. Make sure to network with other businesses and investors as you are at the convention.
-Peter Reagan at Birch Gold Group