As a startup, your business faces many challenges, but none are as big as finding money to get everything off the ground. From renting office or production space to buying goods and hiring staff, everything you need to do to turn your idea into a viable business requires money.
Unless you’re independently wealthy or were left a nest egg from a benevolent relative, you’re probably going to have to work to get that funding. Below are 12 unique ways to get money to fund your small business.
There are a handful of really good crowdfunding sites that have become very popular with inventors, entrepreneurs and the general public in the past two years. Kickstarter is probably the most recognizable, but Indiegogo is gaining in popularity, along with RocketHub, Fundable and Fundly. Each has its own pros and cons, so it’s best to fully investigate the details associated with each site.
Recently, Indiegogo began offering fundraising campaigns without end dates, while RocketHub allows you to keep all the money you raised, even if you don’t meet your goal. Fundly is known for its success in helping non-profits, and Fundable is considered small business-friendly. In the end, the right platform for you will be based on your needs and goals.
2. Angel Investors
Angel investors stand out from other types of funding options because they are always on the lookout for the next business or idea to invest in. Many of the biggest tech companies today, including Google and Yahoo, were funded by angel investors. At its most basic deal, taking money from an angel almost always requires you to give your investor some share of equity in your company. Angel investors and any related transactions must be registered with the Securities and Exchange Commission (SEC).
3. Venture Capitalists
Similar to angel investors, venture capitalists have money to invest, which they want to invest in young, up-and-coming businesses with a high potential for growth and monetary returns. Venture capitalists typically also look for a share of equity in exchange for their investment, but are also interested in having a voice in the direction of the company. VCs are looking to make money on their investments, and many feel the best way to do this is to have some control in how the company is managed.
4. Small Business Administration (SBA) Loans
The U.S. government has a vested interest in the continued growth and success of the small business sector. As a result, the Small Business Administration offers many different loan types to help entrepreneurs get started. Explore the different SBA loan options here. If your business is a non-profit or educational institution, you might also want to explore SBA grants.
Reserved largely for non-profit organizations, microloans are granted by institutions to individuals who would not normally qualify for a traditional bank loan. Instead of gifting a donation to the non-profit organization, microloan organizations allow individuals to invest in economic opportunities. Microloans are very popular in small and developing nations as well.
6. Personal Financing
Starting your own business is risky, and in many cases this level of risk is what prevents traditional lenders from granting loans to entrepreneurs. This is made even more difficult if the startup owner hasn’t invested any of his or her own money. It’s very hard to get a third party to give you money for your idea or business if you haven’t ponied up your own.
If you have savings or own your home and are willing to refinance or take out a second mortgage, then these are options you should definitely explore if you’re comfortable with the potentially bad consequences.
7. Purchase Order Financing
Many different factors can affect a business’ cash flow, including seasonality and supply and demand. For example, some companies may find themselves unable to fulfill a large order due to a lack of funds to purchase the materials needed to produce the goods.
In these instances, purchase order financing might be the answer. A purchase order financing organization will essentially extend an advance so the organization can purchase the materials it needs today and then collect back the money once the goods are sold.
Companies that most often qualify for purchase order financing are those that deal in manufactured goods—not services—and that stand to make a margin of 20% or more on the sale.
8. Vendor Financing
If your ability to pay your bills is contingent on your ability to sell your product, you may benefit from negotiating longer payment terms with your vendors. Most vendors require payment on invoices within 30 days before implementing late fees and penalties. You may be able to negotiate a longer term that gives you more cash to work with in the interim.
This is especially important if you have a sales cycle longer than 30 days. If it takes 45 days from purchase of goods to sale, you’ll never be able to pay invoices in 30 days. This takes negotiation and may not be an option for all vendors.
9. Friends and Family Loans
Your friends and family have a vested, personal interest in watching you succeed. This might make them more willing to invest in your business, especially in the beginning. Taking money from friends and family, however, can be tricky, and all of the pros and cons should be scrutinized before deciding to use this method to generate funds.
Believe it or not, there are organizations out there that offer monetary rewards—or even financing—for businesses and entrepreneurs who enter their contests. Eligibility requirements, entry fees and judging criteria vary widely. But if you have confidence in your idea and your pitch, this might be the way to get some cash.
11. Product Pre-Sales
If your business is based purely on the selling of a single product, the easiest way to raise the money to produce the product may be to pre-sell it. By pre-selling your products, you can be sure not to make too many and have a warehouse of unsold goods. It also keeps you aware that there are consumers relying on you to follow through.
This level of pressure can be a little intimidating for some entrepreneurs, so take time to consider the ramifications of collecting money before providing a product. You will need to have a solid timeline in place and adhere to it. Otherwise, customers might demand their money back, which could lead to a variety of problems.
12. Alternative Lending Sources
Using alternative lenders might require more due diligence on your part because you want to be sure you are doing business with a legitimate vendor. In most cases, however, these lenders fall just outside of the category of banks or government institutions. Some of the more popular alternative lenders include PayPal, Kabbage, OnDeck, Can Capital and Prosper. Here are some considerations to take into account.
Regardless of the funding option you choose, spend time to clearly investigate all of the terms and conditions and make sure it’s right for you and your business. Speak with other entrepreneurs or small business owners, and seek advice from different lending sources. You want to be sure that the choice you make to help your business today doesn’t end up hurting it tomorrow.
On top of that, you need to make sure your finances are stable before reaching out for funding. Creating financial reports that show your business is on the right path is a must-have in order to convince a lender or investor to infuse capital into your business. Financial software like QuickBooks can help you generate these reports, or you can reach out to an accountant to do it for you. Either way, without proof that your business is ready to receive money and put it into action effectively, your chances of landing funding are slim.
If you’re curious about other ways to fund your business, check out our finding funding category for more options.