Couple in their new cafe, proud news business owners
You had your light bulb idea and turned it into a business. Now what?
If you’re like nearly 75% of small businesses in the US, you’re going to need outside funding. No matter if your business is big or small, the thought of having to scrape together the cash to get it off the ground can be daunting.
How much do you need? Where will it come from?
Don’t panic—we’re going to set you up for success. We’ll answer all of these questions and more with our 11 great tips to financing a small business.
1) Ask Your Family and Friends
When thinking about how to get capital for a business, asking for help from those nearest and dearest to you isn’t out of the question. There are a few pros and cons to this method.
A big pro is that if your business fails, your family and friends might be more lenient in recouping their investment.
Cons include burning through your loved ones’ cash—and their goodwill towards you.
Approach this task with confidence in your product. Make sure you lay out a strategy for how you’ll use their investment and what you’ll do if things go south.
2) Crowdfund Your Dream
Crowdfunding involves going online, making your pitch, and asking people to donate to your cause. Sites like Kickstarter and Go Fund Me help small businesses come up with capital this way.
Make sure you have a strong and unique presentation. You need to stand out from all of the other ideas that are asking for strangers’ hard-earned cash.
Bonus: the more money you raise crowdfunding, the higher your chances of getting other outside funding!
3) SBA Loans
The Small Business Association can help with financing a business. These are more traditional loans provided to small businesses through the government.
Here are some important things to know before applying:
- You’ll have to meet the definition of a small business by government standards
- The SBA doesn’t give out loans directly so you’ll have to go to a financial institution that processes them
- You can’t get an SBA loan without proving you’ve been turned down by more traditional means, like bank loans
- Depending on the type of loan, you might have other criteria you’ll have to meet
Don’t be discouraged by these caveats. An SBA loan might be perfect for your business’ needs.
4) Apply for a Microloan
Microloans are just that — small amounts for start-ups that need to cover a small gap in their fundraising. Typically, they range from $500 all the way up to $35,000.
This is a good outside source of funding, especially for those that don’t have great credit. Because the amounts are so small, you’ll need to find a microlender instead of going through a bank.
5) Payday Advance Loans
A payday loan is a quick hit of income that can get you the cash you need in a short amount of time. It’s fast and convenient, although it can sometimes come with high interest rates.
Be smart about budgeting and applying for your payday loan. Even if you’re on federal benefits, companies like Bonsai Finance can help you navigate the application.
6) Partner Up
They say two heads are better than one. Bringing on a partner who’s willing to pony up some capital might be just the thing your business needs.
The benefit of having a partner is that you have someone who believes in you and is willing to fund your dream. The drawback is that they’ll want a say in what you do so keep that in mind.
7) Angel Investors
Angel investors are like partners but without the control in your company. These are usually wealthy people who pool their resources and search for new ideas that can use a financial boost.
They’re out there, but it’s not always easy to get funding this way. Ask your local chamber of commerce or search online to find them.
8) Put It on Your Card
If you can’t find any outside sources of funding, you can use a credit card. Like payday loans, this is great for a temporary fix but you need to keep the interest in mind.
Please be responsible if you go with this method. You don’t want to get stuck paying just the minimum as the interest grows or taking your credit score down several notches.
9) Use Your 401k
Financing a business with a 401k can be risky. If you use it all and your business doesn’t take off, you’ve wiped out your retirement.
Plus, it’s legally tricky to use it for a business. You’ll need to speak to someone who has experience setting up a company using 401ks but it’s doable.
If you’re unemployed or can’t get any other financing, using your nest egg is something to consider.
10) Small Business Loan Organizations
There are many lenders that are willing to give loans to startups. All you have to do is search online and you’ll see pages and pages of results.
Be careful if you go this route. Sometimes their interest rates are very high or they’ll want to secure the loan by holding onto some of your assets.
Read all of the fine print clearly and make sure you understand the terms of the loan before signing on the dotted line.
11) Self-Funding Your Business
Ever heard the phrase “spend money to make money”? Depending on how well you’re doing, your business might be able to do that.
This involves a few sacrifices. You’ll have to pour all of your profits—and sometimes future profits—into growing your business.
It’ll all be worth it once you see your dream take off.
Financing a Small Business is Easy
With these ideas, you’re sure to find the perfect stream of income to make your dream a reality. Financing a small business doesn’t have to be difficult—just use these 11 tips as your guide.
No matter which one you go with, or if you use many of them, you’re sure to find success. If you’re looking for more ways to make your business blossom, check out all of our business tips!
