7 Ways to Raise Funding for Your Small Business
It’s likely that at some point in your business’s life, you will need to raise funding. Whether you’re just getting started or are looking to expand, sometimes you just need an infusion of cash. That’s much easier said than done, but of course if you’ve started a small business, you’re probably quite resourceful! Just like there’s more than one way to start a business, there’s more than one way to raise funding.
I’ve collected several of the most powerful here to get your gears turning. One important thing to think about when you’re looking at funding options is the difference between debt and equity.
Taking out a business loan or running up a credit card bill will put you into debt — but it also leaves you in the driver’s seat when it comes to running your business.
Getting funding from angel investors, partners, or venture capital is a form of leveraging the equity of your company, and can require you to give up some of the control.
Always think through the ramifications of the particular type of funding you’re considering to make sure it’s the smartest choice for you.
Strategic investors: Venture capitalists, angel investors, and cloud funding groups (where multiple investors come together to contribute funds) are always looking for new great business ideas to invest in. If you have a gem of an idea or a proven business that you want to take to the next level, this may be a good place to look. Just keep in mind you may lose some control over your business, depending on the arrangement.
Business partners: Partnering with another person can be a very smart way to get capital — but only take this path if you’re committed to working with this person for the longterm. Some business partners prefer a silent relationship where they allow you to maintain your control while reaping the rewards of their investment. Be sure to spell out the details of any business partnership very carefully and under the guidance of a lawyer before embarking on this path.
Friends and family: Don’t overlook the resources in your community of friends and family. You may know someone who would be willing to give you a personal loan, or multiple people to invest small amounts in your business in exchange for perks. Of course, be explicit about expectations whenever you’re combining friends, business, and money.
Small business loan: Banks and other organizations are often interested in lending money to small businesses. You may even look into the Small Business Administration’s programs to see if there are loads that you qualify for. If you don’t have a proven track record it may be harder to get a favorable loan, so be sure to shop around to find the best interest rate and terms.
Client investment: If you have an innovative product or service, you may be able to find a client willing to be an early adopter and cover the initial costs. This is most likely if you have a product or service that solves a pressing need, and you have few (or no) competitors. The risk here is that the investing client may feel entitled to oversee the direction of your project. Their input may be valuable, but be careful not to lose your own vision.
Grants: Government and nonprofit grants are and often overlooked source of business funding. Many of these programs are aimed at goals like promoting local development and supporting women and minority owned businesses. Nationally, look at initiatives like the Small Business Innovation Research (SBIR) program. Locally, look for business development nonprofits, contests, and other programs.
Crowdfunding: Crowdfunding is a form of alternative finance, which has emerged outside of the traditional financial system. In 2013, over US$5.1 billion was raised via crowdfunding worldwide, which increased to US$16 billion in 2014 and was estimated at over US$34 billion in 2015. Crowdfunding is a form of crowd sourcing where you can fund a project or venture by raising monetary contributions from a large number of people. Crowdfunding today is offered via internet-mediated registries like Gofundme or Kickstarter. The crowdfunding model starts with the project initiator pitching the idea or project to be funded; then individuals or groups support the idea usually by pledging funds; and a moderating organization (the “platform”) that brings the parties together to launch the idea.
How have you found funding for your business? What are some of the most creative things you’ve tried? I’d love to hear your stories in the comments.