Current financing options are broken into three categories:
- Small Business or High-Growth
- Small Business
Small Business or High-Growth Financing Options
Friends and Family
Money from friends and family is usually used to fund the earliest stages of a company, sometimes before you even have a prototype. It can be in the form of a gift, a loan or an equity investment in the business.
Whatever option you choose, everything should be recorded in writing (in many cases, a legal document). Spell out terms and conditions, so there’s no confusion. For example, lenders might assume their financial investment gives them a stake in the company or a voice in daily operations. On the other hand, borrowers may believe that it’s OK to miss the occasional payment since the lender is a friend.
- It’s about love — Friends and family are more likely to be motivated by love than profit. They finance you when other options aren’t available.
- Greater flexibility — Rates and terms can be lower or more flexible than through other financing channels.
- Awkwardness — Money doesn’t get more personal than this, so think carefully about what would happen to the relationship if your business falters and you lose their investment. If you can’t face friends or family members after losing their money, then don’t take it.
How to Get It
It’s always advisable to present a formal business plan when pitching to prospective investors — even friends and relatives. The kitchen table pitch is really about selling yourself. Be frank about the risks and explain what the money will go toward and how it will grow your business.
Government Small Business Grants
The federal government offers some grants for small-business owners, but they’re designated for specific purposes, such as certain research and development projects or for businesses in rural areas. While government grants can’t be used to cover startup costs or day-to-day expenses and most aren’t earmarked specifically for women, they may be a viable option depending on the nature of your startup.
- Free money — Grants do not require repayment. The key is finding which grants you qualify for and then doing the work to apply for the grant.
- Restrictive — Government grants are typically designated for specific purposes and have strict eligibility requirements as far as what costs can be covered.
- Time and effort — Applying for grants is time consuming and the application process rigid. Every “i” needs to be dotted and “t” crossed.
- Slow decision-making process — It takes weeks or months to find out whether you’ve been approved for a government grant.
- Highly competitive — Expect a lot of other highly qualified companies to submit some first-rate ideas, too.
- Strings attached — Grants may be awarded with the contingency that you get matching funds or a loan to supplement the grant. You may be required to submit extra paperwork, such as monthly or quarterly progress reports.
How to Get It
- Grants.gov — A database of all federally sponsored grants. You can search for small-business grants here — just make sure you filter the results on the left side of the page to view grants specifically for small businesses.
- Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) — The Small Business Association facilitates two competitive programs that provide grants to small businesses that contribute to federal research and development. Eleven federal agencies, including the departments of Agriculture, Defense, and Health and Human Services, post grant opportunities on their websites. You can search all grant opportunities on the SBIR website.
- State and local — Because federal small-business grants are limited in number and often are competitive, you may have better luck searching for grants at the state and municipal levels. You’ll have to do your own research to pinpoint specific grant programs in your area, but here are some places to look.
- Economic development agencies — Every state and many cities have economic development agencies that are focused on promoting a strong local economy. Even if the agency itself doesn’t offer a small-business grant, it will likely be able to point you in the right direction.
Competitions are events created for entrepreneurs with new business ideas who need seed funding. You present your idea and the need for investment.
- Free money — Many competitions provide prize money, investment capital or in-kind awards.
- A time to reflect — Participating in a competition forces you to think critically about every aspect of your company. It’s a chance to refine your business model.
- Practice makes perfect — You get to perfect your pitch and get feedback from highly experienced people.
- High-quality advice — Most competitions put forward mentors who offer advice and may open doors to money, customers, vendors and talent.
- Bragging rights — The honor of winning a competition adds weight to your business’s credentials and exposes you to media and others in the competition’s circle of influence.
- Time and effort — Participating in a competition requires a lot of time and effort, and the success rate is typically low.
How to Get It
Here are some of the competitions that are specifically geared toward female founders:
- Cartier Women’s Initiative — A business plan competition created in 2006 by Cartier, the Women’s Forum, McKinsey & Company and INSEAD business school.
- Eileen Fisher — Provides grants to innovative, women-owned companies that make a positive social and environmental impact.
- GirlBoss Foundation — Awards grants to women in the worlds of design, fashion, music and the arts to help fund their own businesses.
- InnovateHer — A nationwide, SBA-supported business competition for women entrepreneurs who have launched innovative products and services for women.
- Project Entrepreneur from Rent the Runway and UBS — Gives women access to the tools, training and networks needed to build scalable companies.
- Tory Burch Foundation Fellows — Provides training and support to help early-stage women entrepreneurs grow and scale their businesses.
One of the more intriguing entries in the capital world is rewards-based crowdfunding. Crowdfunding is the practice of funding a business or product venture with many small contributions from a large number of people. This is normally done online.
- The money is debt- and equity-free — You don’t have to pay interest or give up a piece of your company in exchange for funding. However, you do provide backers with a tangible item in exchange for their money. Businesses using rewards-based crowdfunding frequently receive money for a new product before manufacturing it.
- You gain market insight — Doing a crowdfunding campaign provides feedback from early-adopter customers about product features, communication messages and pricing.
- Your product is validated — If your campaign is successful, you’ve not only proven to yourself that the market wants your product, but you’ve shown its potential to future funders as well.
- You engage customers — Early customers are more likely to provide feedback and forgive small imperfections. They are also more likely to tell others about your product.
- It raises your profile — A crowdfunding campaign can also function as a marketing campaign.
- You may not succeed — The odds are not in your favor. The success rate on Kickstarter for many small-business categories is below 30 percent. Indiegogo doesn’t publish its stats.
- It takes time and effort — Running a successful crowdfunding campaign takes persistence.
- It takes money — As crowdfunding becomes more popular, it takes more to be successful. For campaigns with large goals, many are turning to professionals for help with marketing and to manage producing and fulfilling the rewards, which adds cost to the project.
- There are often unanticipated costs — Make sure you create a budget and account for the cost to manufacture and fulfill your rewards. If you’ve chosen a flexible funding model that allows you to accept less than your entire goal amount, determine if you can cover all of your costs even if you don’t raise your entire goal.
Crowdfunding is the one financing option in which women outperform men. Research finds that women tell more compelling stories (than men) by connecting at an emotional level and that their community is more likely to support them. Because rewards-based crowdfunding gets a lot of buzz, it’s worth considering.