Starting a small business isn’t all fun and games.
Setting your own hours and watching the money roll in is a lot of fun. But don’t expect those rewards for years as you work long hours for a meager salary during the early years of opening a business.
Funding it is also a headache. A major one.
Help is available, and it can be the difference between success and falling on your face as you introduce your new business to the world.
Here are some ways to get money and get your business off the ground:
1. Do it Yourself without debt
This way won’t get you much help from elsewhere, though at least you’ll do it without taking on any debt.
Most businesses don’t make a profit in their first year. Most need 18 to 24 months to be profitable. Having debt can make that more difficult.
A big way to avoid debt is by using few, if any, loans or other types of external capital. This means funding it yourself by using savings, credit cards, selling assets or revenue once your business gets going.
This won’t require paying back a loan, and it will make your business as lean as possible. If you don’t mind using your personal savings to take the risk of starting a business, then this could be the best way to proceed without going into debt.
2. Friends and family
Borrowing money from friends and family can be an easy way to get some start-up cash, but be warned that it could hurt your relationships with them.
Do you want to have to go into detail about how your business is doing every time there’s a family get-together?
What if the business has a hard time for a few months and you can’t make loan payments? That can lead to an awkward visit with friends who are putting their financial faith in you.
3. Business partners
Someone may be willing to invest in your company as a business partner. They wouldn’t run the day-to-day operations, but would be an investor only. Instead, they’d get equity in the business. They wouldn’t work for you.
Do this with a written contract through a lawyer. Define what each partner can expect and what happens if the business dissolves and a partner wants to be bought out of the business.
A partnership can avoid family connections with a written agreement that can help avoid conflicts.
Small business grants are available from government agencies, nonprofit and for-profit companies, and local chambers of commerce, among others.
This free money can have narrow eligibility requirements, such as focusing on science or energy industries that help a community with jobs. Grants from nonprofits may focus on certain types of business owners, such as women, minorities or veterans.
5. SBA loans
The SBA also helps small business owners get loans. It guarantees the loan will be repaid to the lender, even if the business fails. If the business can’t repay the loan, the government does, as a way to encourage banks to lend to small businesses.
Startups, however, can have difficulty getting these loans. In general, a few years of generating revenue and coming close to profitability is required.
Instead of going to a bank for money, ask your friends. We know, this may sound a little like asking them for a loan. But instead of being paid back, it’s a gift for your business.
From the giver’s view, that isn’t as good as a loan where they’d get their money back. But they do get the satisfaction of helping to get your idea off the ground.
How does crowdfunding work? You create a 30-day fundraising campaign. Individuals can be rewarded with some kind of gift, such as a product you’re starting your company with. People who fund it can get it for free or at a discount. Equity in the company can also be offered.
Crowdfunding sites include:
- Crowd Supply
7. Product pre-sales
If you have an idea for a product, why not start your business by creating it and selling it upfront? This can be part of crowdfunding, or can be done on its own.
The money can be used to make the first batch of products, and hopefully it will be so successful that word-of-mouth will spread and you’ll be inundated with customer orders.
If you're selling a service, this option may not work for you. Or maybe it could? Sell massages or other services before being delivered as a way to build up your capital and get your advertising going.
8. Alternative lenders
If a bank won’t fund your small business loan or crowdfunding doesn’t work, there are online alternative lenders that specialize in helping small businesses get started.
Long-term loans or lines of credit can be available from online lenders such as Kabbage, OnDeck and BlueVine
The financial services company Fiona matches consumers with loan providers. Even if you have average credit, you could qualify for an unsecured loan from $1,000 to $100,00 with repayment terms of 24 to 84 months.
You fill out a simple form at Fiona’s website, and it will check offers from its providers in seconds. Loans can be searched based on credit scores, location, loan amount, and your needs.
You then review the offers and choose one that has the best terms for you. If your loan is approved, you can get the money soon.