Starting a business is exciting, but it can also feel daunting and stressful. In fact, money is one of the biggest factors stopping most entrepreneurs from following their dreams. There is no question that launching a business with enough money to keep it afloat is absolutely crucial. And that’s where funding comes into play. It’s quite common for today’s business owners to use money from several different sources. But where should you look for funding?
Investors: Your local entrepreneurial community is typically a very good place to find individuals willing to invest in your business. Be sure to research investors and venture capitalists and come to a mutual agreement on a term sheet about your business arrangement.
Friends and Family: While this can sometimes be a risky way to fund a business, if you treat the situation professionally, it can be a positive arrangement. Any friends or family who help to fund your business should earn interest or equity in the company and should be paid monthly. In addition, it is important to have legal documentation to solidify your arrangement.
Business Plan Competitions: Business plan competitions not only offer feedback on business ideas and plans, but also provide opportunities for business funding. These competitions are contests between startup, early-stage, and growing businesses. The objective of a business plan competition is for participants to develop and submit an original idea or complete their existing business plan based on specific guidelines, which are provided by the organization running the contest. Companies are judged according to set criteria, including creativity, feasibility, execution, and the quality of your business plan.
Traditional Loans: Traditional lenders look at personal credit when deciding whether to give you a loan. If your credit score is below 680, there may not be many options in the traditional lending arena. But if your business has been in operation for two or more years, if you have good credit, and if you have at least $100,000 a year in revenue, you should be able to find good interest rates from a traditional lender.
Microlenders: A microloan is a very small loan, typically equaling less than $50,000, given out by individuals instead of traditional lending institutions. These loans may also be offered through government organizations, such as the Small Business Administration or nonprofit organizations. If you don’t need to borrow large sums of money, this could be a good option for your business.
Credit Cards: Credit cards can be a good source of funding due to the ease of getting approved, the built-in fraud protection, and the ability to earn cash back and rewards. In fact, according to a survey of business owners and entrepreneurs by Bank of America, 37 percent of individuals ages 21 to 36 use credit cards to fund their businesses. But it is important to keep in mind that there are real risks associated with using credit cards, such as accruing debt. Always ensure you stay current on your debt so late payment fees and interest don’t accrue.
Crowdfunding: Crowdfunding raises funds by asking a large number of people (crowds) to donate in small amounts for a short period of time. This takes place online (often on social networks), which makes it easy for supporters to share a cause within their social networks. This is a great way for small businesses or startups to raise money in exchange for equity, rewards, debt, or nothing at all.
Business crowdfunding provides you with fast access to cash, but it requires a strong promotional strategy, transparency, and typically giving up some equity in the business. Some of the best-known crowdfunding sites include GoFundMe, Kiva, and Kickstarter. Be aware that while many people assume crowdfunding is an easy way to make money, it requires a great deal of effort to develop a project that backers will perceive as valuable. Success is far from guaranteed, and many backers are becoming quite selective in the projects they support.
Small Business Grants: Many government entities, corporations, and nonprofits provide money to launch or grow a small business. Some small business grants are open to any small business, while others are directed at specific demographics, such as businesses owned by minorities, women, or veterans. Take a look at the website, Grants.gov, which is the largest database for federal grant opportunities.
Government Grants: Government grants are available for small businesses at the federal, state, and local levels for many different businesses. A few examples of government grants include:
Farmers Market Promotion Program: Businesses in the agricultural sector can benefit from the Farmers Market Promotion Program, which strives to increase applicable marketplaces and manufacturer-to-consumer products. These businesses can receive educational resources, training, and financial support.
It is impossible to achieve a dream if you can’t fund that dream. What gives you the greatest chance of success is developing a business with enough money so you can do it right and keep it successful. And that’s the simple goal of creative fundraising.