Are you starting a business or already have one that’s fast-expanding? Congratulations! There are over 30 million small businesses in the United States, boosting the economy and employing millions.
Owning and operating your own business has its challenges, and sometimes funding is one of them. Are you wondering how to raise capital and get funding for a small business?
Keep reading for six ways to obtain small business funding.
1. Invest Your Own Money
This option is scary for many people but may be a better option than you think, especially if you don’t need lots of startup capital. A low-interest or even 0% APR business credit card offers you borrowing power for at least a period of time with no recurring interest. This is a good option if you don’t have a lot of savings.
Funding any business means incurring risk but what’s the potential for your business? Are you clear on your vision? Are you motivated and refuse to accept failure?
Investing your own money also shows others you’re sure about your business. This makes others more apt to partner with you as your business moves forward.
Crowdfunding is another option. There are several crowdfunding sites like Kickstarter that’ve given start-ups new ways of funding their business. Crowdfunding is like it sounds – getting the crowd to fund your project.
There are several types of crowdfunding, some of which include:
- Peer-to-peer lending
Securities crowdfunding allows others to invest in your company. In return for funds, you promise future stock, a share of the company, or other security.
Reward crowdfunding enables you to raise cash by offering your donors a product in the future. For instance, you’re starting a new line of jewelry and each donor receives a limited-edition necklace once the business is up and running.
With peer-to-peer funding, you bypass traditional loans and borrow money straight from your peers. There are many instances of successful crowdfunding campaigns.
One of the most important pieces of success in a crowdfunding campaign is a compelling story. Give investors your backstory, how you came up with your idea, and how you’ll turn it into a real-world business.
3. Tap Your Connections
Many people ask family, friends, and business connections for a loan or funding against future investment in the company. If you’re tapping your connections, it’s important you’re clear about your business plan.
It helps to ask those with some business skills as well. Be upfront about how much money you need and what the risk is.
Never take a donation or loan without getting it all in writing. If the money is a loan, agree on how you’ll repay it and when. There are lots of online lending sites that can help with the paperwork.
4. Angel Investor
You may have a vision of an amazing person who goes around handing out money only because they’re kind and angelic. An angel investor is a specific type of investor. She has a net worth of over one million dollars or she makes more than $200,000 a year.
Most angel investors operate on their own but sometimes they team up with other investors. Don’t go to an angel investor unless you’ve got a solid business plan.
You’ll need a unique proposition with a lot of business potential to capture the attention of an angel investor. Don’t know any angel investors? Look on the internet for angel investor showcases.
5. Venture Capitalists (VCs)
Is your company already past the start-up phase? Are you looking for more money to grow the business? A venture capitalist (VC) may be the solution.
Angel investors work with brand-new startups but VCs usually look for a more mature company. A VC provides funding in exchange for a stake in your business. A VC may also want a hand in the day-to-day operation of the company.
A VC looks for proven, scaleable business models with positive cash flow to achieve specific returns for the fund or firm. If this is your situation, you can apply for funding with a VC firm.
As with angel investors, don’t approach a VC unless you’ve got a great pitch. Your pitch should include several elements:
- Explanation of an industry problem that offers an opportunity for your business
- Explanation of what your company does and how your company can capitalize on this new opportunity
- Explanation of your company’s story as well as financials
When you get in front of a VC, don’t ramble. Keep your explanations short and get right to the point. Have a well-presented business plan.
A VC wants to know that he’s going to make money from your company. You need a solid company with growing business opportunities.
6. Asset-Based Lending
Asset-based lending is another way of getting funding for a small business. This is also for a more-established company or one that has already earned enough to have assets. As the name implies, you’ll put up some of your business’s financial assets as collateral for a loan.
This type of loan is typically a line of credit, so you’re not making a payment on an entire loan amount. The application process is fast and interest rates are often lower than traditional loans. The loans are also uniquely tailored to your business situation.
Past history and credit scores don’t play into asset-based lending because the loan is against the existing financial assets. If you’re interested in asset-based lending, take a look at this funding company.
Obtaining Funding for a Small Business
Obtaining funding for a small business takes time but there are many ways to fund a business. Before you approach any person or institution for funding, make sure you have your business plan in good order.
Have your pitch ready and be clear about your vision for the business. Give clear explanations with concrete methods for putting your business plan into action. You got this!
Are you looking for more good business advice? Find more articles on the blog!