6 ways to raise money for a small business
Small business owners have multiple funding options from which to choose, all of which have pros and cons. Keep in mind that you may have a harder time getting a traditional loan if you’re just starting out. If you plan to find outside sources of funding, you may benefit from creating a business plan and financial summary to build trust and confidence with your supporters.
1. Bootstrap with personal income or savings
Many people choose to fund their initial business activities via bootstrapping. That means you don't seek outside money, like investors or loans. Instead, you launch the business with your own money.
Assuming you have the income or savings to put toward it, this is a simpler funding style because you won't owe money to anybody else. Bootstrapping is often the best option while testing the viability of your business, especially since you can be nimble and control every decision you make.
However, bootstrapping isn't the right option for everybody. You might not have extra money to contribute or feel comfortable using your savings for something that's not a sure bet. If you do decide to bootstrap, limit how much of your own money you're going to invest upfront.
2. Ask friends and family
Your friends or family members might be willing to help fund your small business in the form of a monetary gift or loan. In certain cases, a family member might also co-sign a loan. Knowing your investors personally can provide peace of mind, especially because they can be more flexible on repayment timing and likely won’t charge interest.
That said, mixing financial deals with personal relationships can cause friction if the business isn't a success. It can also be stressful knowing that you owe money to a friend or loved one, especially since you don't want to let them down. Set clear boundaries around business talk and put your agreement in writing for everyone’s sake.
3. Crowdfunding
Crowdfunding campaigns are one of the most common ways to raise money for business expenses or operations. With these campaigns, supporters can give money toward a specific cause, such as helping you buy a piece of equipment. Other campaigns involve donating a specific amount of money in exchange for goods or services. If your business produces tangible goods or products, crowdfunding can also function like a pre-order window.
Crowdfunding offers an easy way to promote your business and create brand awareness. It can also be a great way to build a loyal customer base. For example, your crowdfunding tiers can include exclusive items or perks.
You can launch a crowdfunding campaign on your website with a donation block, which you can customize to your fundraising goals. It's also easy to fundraise on your social media accounts by creating a crowdfunding section for your Bio Site. These can be one-off campaigns with discrete goals or an ongoing campaign that you update periodically as you reach funding milestones.
Make sure you have an accurate estimate of costs and time to follow through on a campaign. Not delivering on the goal of your crowdfunding campaign can damage your business and brand.
4. Grants
Grants are monetary awards that you don't need to pay back, similar to scholarships. Small business grants are available through local chambers of commerce, state organizations and even global corporations. Grants are also available to certain groups of people, such as artists living with disabilities, or earmarked specifically for minority- and women-owned businesses.
Grants are an appealing choice for early stage business owners because the money is yours to keep no matter what happens. This money also offers less risk because the grantees aren't expecting repayment.
That said, grants come with some extra responsibilities. Although websites like grants.gov offer a searchable database of grants, researching, identifying, and applying to awards you're eligible for can take time. Some grants also require awardees to provide periodic reports on their results.
5. Small business loans
Small business loans are a form of debt financing, where you borrow a certain amount of money that's paid back at a later date. Banks typically offer loans to small business owners who meet certain requirements.
Your local or government small business association, like the Small Business Association in the U.S., can be another good resource. In the U.S., the SBA offers loans of varying amounts in addition to providing information and connections to grants, investors, and community organizations. You can also make an appointment to talk one-on-one with a representative and go over options.
You need to pay loans back, most often with interest, so bank requirements can be strict. Many require you to be in business for at least two years, have a good credit score, and show strong financials to qualify. This kind of funding is best for established businesses that have steady revenue.
6. Angel investment and venture capital
Angel investments and venture capital are generally reserved for startup businesses with significant growth opportunities or the potential to go public on the stock market. Raising venture capital is a complicated process that involves seeking out investors and making formal presentations that sell your business.
Venture capital might be a viable option once your business has matured. You could be ready if your business is making large revenues and has the potential to turn significant profits, but needs partners or funding to cross that threshold. You'll also need to have extensive budget forecasts, and a solid business plan and marketing strategy in place.
Venture capital deals offer significant funds but often require businesses to give up control. For example, some investors receive significant shares of equity or might ask for a seat (or seats) on a board.
AHD Consulting Solution is here to help you with tools and insights to not just deal with these challenges but turn them into opportunities for innovation success. Accessible to corporations of any size, our sprints and programs include interactive workflows, videos, pre-structured workspaces, and much more. If you want to discuss a potential project, you can email on services@ahdconsultingsolution.com or get in touch with us here. Alternatively, you can book in a free 15-minute consultation call here.
