8 Clever Ways to Fund Your New Business
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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. The journey from idea to reality requires more than just passion – it requires the fuel of business funding to ignite the flames of success.
Funding is also a headache. A major one. Whether you're bootstrapping your way through the early stages, seeking support from angel investors, or vying for the attention of venture capitalists, each avenue of funding presents its own unique opportunities and challenges.
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.
In this article
1. Bootstrapping
Bootstrapping is a method of funding a business where the entrepreneur starts and grows the business with little to no external capital. Instead of relying on outside investors or loans, the entrepreneur uses personal savings, revenue generated by the business itself, and often a mix of frugality and resourcefulness to cover expenses and fuel growth. Bootstrapping typically starts with the business owners investing their own money into the business. This could include personal savings, credit cards, or other assets.
Instead of seeking external investment upfront, bootstrapped businesses focus on generating revenue from their products or services as quickly as possible. This revenue is then reinvested back into the business to fuel growth.
Bootstrapped entrepreneurs are often highly conscious of expenses and focus on keeping costs low. One of the primary benefits of bootstrapping is that the entrepreneur retains full ownership and control of the business. Without outside investors, there are no stakeholders to answer to or decision-making power to relinquish.
Bootstrapping is not without its challenges, and it may not be suitable for every business. It requires discipline, patience, and a willingness to make sacrifices in the short term for long-term success.
Pros and cons
Pros
- Independence and control
- No debt or equity dilution
- Focus on profitability
- Flexibility and agility
- Resourcefulness and creativity
Cons
- Limited resources
- Slower growth
- Risk of burnout
- Opportunity costs
Many Lenders Fund In 24-48 Hours. Start Your Request Today!
Get your small business funded fast! Go to the LendingTree® official site to compare 2024’s top online lenders and get offers.
Secure and Fast.
2. Crowdfunding
Crowdfunding is a method of raising capital for a project or venture by collecting small contributions from a large number of people, typically via the Internet. It's a popular way for entrepreneurs, artists, and innovators to fund their ideas without relying on traditional investors or financial institutions.
Several crowdfunding platforms are available, such as Kickstarter, Indiegogo, GoFundMe, and Patreon. Each has its own focus and guidelines. You must select the platform that best aligns with your project and goals.
Once you've chosen a platform, you'll create a crowdfunding campaign page where you'll introduce your project, explain what you're trying to achieve, and outline the funding goal. You'll also set a timeframe for the campaign to run. You'll need to specify the amount of money you're trying to raise (your funding goal) and what backers will receive in return for their contributions (rewards).
Overall, crowdfunding can be an effective way to validate your idea, raise capital, and build a loyal fan base for your project. However, it requires careful planning, execution, and ongoing engagement to succeed.
Pros and cons
Pros
- Access to capital
- Validation of idea
- Marketing and promotion
- Engagement and community building
- Creative freedom
Cons
- Competitive landscape
- Time and effort
- Risk of failure
- Fees and costs
- Pressure to deliver
- Intellectual property risks
Related: Best Crowdfunding Investing Apps
3. Small business grants
Small business grants are non-repayable funds provided by government agencies, non-profit organizations, corporations, or private foundations to support the growth and development of small businesses. Unlike small business loans, grants do not need to be repaid, making them an attractive source of funding for entrepreneurs who may not qualify for traditional financing or prefer not to take on debt.
Types of small business grants
- Government grants. Many local, state/provincial, and national government agencies offer grants to support small businesses. These grants may target specific industries, geographic regions, or underrepresented groups such as women, minorities, veterans, or rural businesses.
- Non-profit grants. Non-profit organizations and foundations may provide grants to support economic development, job creation, entrepreneurship, or community revitalization efforts. These grants often have specific eligibility criteria and may focus on particular social or environmental objectives.
- Corporate grants. Some corporations offer grant programs as part of their corporate social responsibility initiatives. These grants may support small businesses that align with the company's values or strategic priorities, such as sustainability, diversity, or innovation.
Pros and cons
Pros
- Non-repayable funds
- Support for growth and innovation
- Credibility and recognition
- Flexibility in spending
- Access to resources and support
Cons
- Competitive application process
- Limited availability and eligibility
- Reporting and compliance
- Uncertain funding
4. Friends and family
Funding from friends and family is a common way for entrepreneurs to kickstart their businesses. It involves borrowing money or receiving investments from individuals within one's personal network, such as friends, family members, or close acquaintances.
Entrepreneurs typically reach out to friends and family members who have the financial means and willingness to invest in their business venture. These individuals may include parents, siblings, close friends, or even distant relatives.
The entrepreneur presents their business idea, including the concept, market opportunity, potential for growth, and the amount of funding needed. It's crucial to communicate the business plan clearly and transparently, addressing any risks and uncertainties. Both parties discuss the terms of the investment, such as the amount of money to be invested, the equity stake or repayment terms, and any other relevant conditions.
Once the terms are agreed upon, the friends or family members provide the agreed-upon funding to the entrepreneur. This could be a loan, where the money is expected to be repaid with interest, or an equity investment, where the investor receives an ownership stake in the business.
While funding from friends and family can be a valuable source of initial capital for entrepreneurs, it's essential to approach it with caution and to set clear expectations and boundaries from the outset.
Pros and cons
Pros
- Accessibility
- Speed
- Flexible terms
- Emotional support
- Potential for less stringent requirements
Cons
- Strain on relationships
- Financial risk
- Lack of professionalism
- Limited funding capacity
- Loss of autonomy
Many Lenders Fund In 24-48 Hours. Start Your Request Today!
Get your small business funded fast! Go to the LendingTree® official site to compare 2024’s top online lenders and get offers.
Secure and Fast.
5. Strategic partnerships
Strategic partnerships involve collaborating with other businesses or organizations to achieve mutual goals that would be difficult or impossible to accomplish alone. These partnerships are formed to leverage each other's strengths, resources, and expertise to create value, enter new markets, innovate, or achieve strategic objectives.
They can be a powerful tool for businesses to drive growth, innovation, and competitive advantage. However, they require careful planning, execution, and ongoing management to realize their full potential and mitigate risks and challenges.
Pros and cons
Pros
- Access to resources and expertise
- Risk sharing
- Market expansion
- Innovation and creativity
- Competitive advantage
Cons
- Alignment of objectives
- Integration and coordination
- Dependency risks
- Intellectual property concerns
- Cultural and organizational differences
6. Government programs and grants
Government programs and grants are initiatives established by governmental entities at various levels (local, state/provincial, national, or even international) to support businesses, organizations, individuals, or communities in achieving specific objectives, such as economic development, job creation, innovation, social welfare, or environmental sustainability. These programs and grants come in various forms and are often administered by government agencies, departments, or specialized organizations. Here's a deeper look into government programs and grants:
Types of government programs and grants
- Small business grants. Many governments offer grants specifically designed to support small businesses. These grants may fund business development, research and development, export promotion, workforce training, or other strategic initiatives.
- Industry-specific programs. Governments may establish programs tailored to specific industries or sectors, such as agriculture, technology, manufacturing, renewable energy, or tourism. These programs often provide funding, incentives, or regulatory support to promote growth, innovation, and competitiveness within the industry.
- Research and innovation grants. Governments may offer grants to support research and development activities, innovation, and technology commercialization. These grants can help businesses, research institutions, and entrepreneurs develop new products, processes, or services and bring them to market.
- Export assistance programs. Governments may provide grants or support services to help businesses expand into international markets. These programs may offer funding for market research, export promotion activities, trade missions, or participation in trade shows and exhibitions.
- Workforce development grants. Governments may invest in workforce development programs to enhance the skills and capabilities of the labor force. These programs may include grants for job training, apprenticeships, vocational education, or workforce development initiatives targeted at specific industries or populations.
- Community development grants. Governments may allocate funding for community development projects aimed at improving infrastructure, revitalizing neighborhoods, supporting affordable housing, or promoting economic development in disadvantaged areas.
Pros and cons
Pros
- Access to funding
- Support for growth and innovation
- Market access and export promotion
- Stimulating economic development
- Leveling the playing field
Cons
- Complex application process
- Competitive nature
- Stringent reporting and compliance
- Uncertain funding
- Bureaucratic processes
7. Venture capitalists
Venture capitalists (VCs) are professional investors who fund startups and small businesses with high growth potential in exchange for equity ownership. These investors typically seek to invest in early-stage or growth-stage companies that demonstrate innovation, scalability, and the potential for significant returns on investment.
Venture capitalists aim to generate returns on their investments by helping their portfolio companies achieve significant growth and profitability. They may seek to exit their investments through various means, such as an initial public offering (IPO), acquisition by a larger company, or secondary sale of their equity stake. In addition to providing capital, venture capitalists often offer strategic guidance, mentorship, and access to their contacts, resources, and expertise.
However, entrepreneurs must carefully consider the trade-offs and implications of accepting venture capital funding and select investors who align with their strategic objectives and vision for the company.
Pros and cons
Pros
- Access to capital
- Expertise and mentorship
- Validation and credibility
- Strategic partnerships and resources
- Aligned incentives
Cons
- Loss of control
- High expectations and pressure
- Selective investment criteria
- Exit requirements
- Dilution of ownership
Many Lenders Fund In 24-48 Hours. Start Your Request Today!
Get your small business funded fast! Go to the LendingTree® official site to compare 2024’s top online lenders and get offers.
Secure and Fast.
8. Small business loans
Small business loans are a type of financing specifically designed to meet the needs of small businesses. These loans provide businesses with access to capital that can be used for various purposes, such as starting a new business, expanding operations, purchasing equipment, hiring employees, or managing cash flow. Small business loans come in various forms and are offered by banks, credit unions, online lenders, and government agencies. Here's a deeper look into small business loans.
Types of small business loans
- Traditional term loans. Traditional term loans are one of the most common small business loans. They involve borrowing a fixed amount of money from a lender and repaying it over a set period, typically with fixed monthly payments.
- SBA loans. The U.S. Small Business Administration (SBA) guarantees SBA loans, making them more accessible to small businesses that may not qualify for traditional bank loans. SBA loans come in several programs, including the 7(a) loan program, the CDC/504 loan program, and the microloan program, each with its own eligibility criteria and requirements.
- Equipment loans. Equipment loans are used to finance the purchase of equipment or machinery for business use. These loans are typically secured by the equipment itself, which serves as collateral for the loan. Equipment loans may offer favorable terms, such as longer repayment periods and lower interest rates, to help businesses afford expensive equipment purchases.
- Lines of credit. A line of credit is a flexible form of financing that allows businesses to borrow funds up to a predetermined business credit limit. Businesses can draw funds as needed and only pay interest on the amount borrowed. Lines of credit are often used to manage cash flow, cover short-term expenses, or take advantage of opportunities as they arise.
- Invoice financing. Invoice financing, or accounts receivable financing, involves borrowing against unpaid invoices to access immediate cash flow. Lenders advance a percentage of the invoice value and collect payment from customers on behalf of the business.
- Merchant cash advances. Merchant cash advances provide businesses with a lump sum of cash in exchange for a percentage of future credit card sales. Repayments are made automatically through daily or weekly deductions from credit card transactions. Merchant cash advances can be a quick and convenient financing option for businesses with consistent credit card sales.
Pros and cons
Pros
- Access to capital
- Flexible financing options
- Build credit
- Support growth and expansion
- Stabilize cash flow
Cons
- Interest rates and fees
- Credit requirements
- Collateral requirements
- Impact on cash flow
- Risk of overleveraging
The bottom line
There is no one-size-fits-all solution when it comes to business funding. Different funding options have advantages, disadvantages, and considerations. Entrepreneurs must carefully evaluate their business needs, objectives, and circumstances before deciding on the most suitable funding approach.
Numerous funding options are available to businesses, including bootstrapping, loans, venture capital, angel investment, crowdfunding, grants, and strategic partnerships. Research each option thoroughly to understand its requirements, benefits, and risks.
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