Every entrepreneur knows it takes blood, sweat, and tears to start and run a small business. But what about funding? Having access to enough capital is essential to getting your company up and running and then sustaining it for the long run.
Small business owners typically tap into their private assets to fund their company, especially in the beginning. In fact, personal funds were the primary source of funding for 14% of firm owners who responded to a recent Federal Reserve report on employer firms.
At some point though, your business needs will outgrow what you can cover using your personal savings or other financial assets. You can turn to your friends and family to invest, but what happens if it still isn’t enough, or when it runs out? When your ambitions surpass your personal finances, it’s time to explore other options. While turning to friends and family for investment might seem like a viable solution, there’s a chance that even their contributions might not be enough to fulfill your dreams. What happens then?
This is where alternative financing methods step in. From business loans to crowdfunding platforms, there are several avenues to explore when seeking additional financial support beyond personal savings. Business loans, whether from traditional banks or online lenders, can provide the capital needed to expand your venture. These loans often come with a range of repayment options tailored to your needs.
No matter which route you choose, it’s crucial to have a solid business plan in place. Financial institutions and potential investors will want to see your growth projections and how their investment will be utilized. Remember, seeking additional financing doesn’t indicate a lack of personal funds; it shows your dedication to taking your venture to the next level. So, don’t be afraid to explore these alternative avenues when personal savings aren’t sufficient for your ambitions.
How can you fund your business when you need it? Keep reading to find out.
Begin by Looking Local
Look for a small business development center near you or visit your town’s chamber of commerce. These local organizations can help small businesses take the first step toward funding by providing:
- Opportunities to network with other entrepreneurs and investors
- Contact information for funding sources in your area
- Guidance on the best financing type for your situation
- Application assistance
- Business Funding Sources
Where you go for business funding will depend on the amount you need, how quickly you need it, and whether you have collateral to put up or strong credit history to leverage.
Banks
Banks are best for businesses with healthy credit, access to collateral, and at least two years of operational history. Bank loans are among the most challenging funding sources to access because of their stringent requirements and sometimes lengthy application procedures. However, these loans offer relatively low-interest rates and a potentially larger loan than many other funding sources. The credit limit set by the bank plays a crucial role in determining the amount of funding available, as it is based on the lender’s assessment of the borrower’s creditworthiness. Whether you’re starting a new business or looking to expand an existing one, securing financing can be a major hurdle.
Fortunately, there are a variety of loan options available to entrepreneurs, one of which is a business loan from a bank. While banks may have stringent requirements and lengthy application procedures, these loans come with the benefit of relatively low-interest rates and the potential for a larger loan amount compared to other funding sources.
Banks have established themselves as trusted financial institutions due to their long-standing presence in the industry.
This credibility translates into lower interest rates for borrowers, making business loans from banks an attractive option for those seeking affordable financing.
These lower rates can result in significant savings over the course of the loan repayment period, allowing entrepreneurs to allocate more funds towards growing their business rather than paying off high-interest debts.
Another advantage of obtaining a business loan from a bank is the potentially larger loan amount. Banks have the capital and capacity to lend substantial sums to businesses, especially those with a proven track record and solid financial standing. This can be particularly beneficial for companies with ambitious growth plans or large-scale projects. With a higher loan amount, entrepreneurs have the financial flexibility needed to invest in equipment, hire additional staff, expand operations, or explore new markets.
While the loan application process at a bank may be more rigorous than other funding options, it is important to note that banks prioritize lending to businesses that demonstrate financial stability and a reliable repayment capacity.
Gathering the required documentation, such as financial statements, tax returns, and a comprehensive business plan, is crucial to increase the chances of approval. Though the process may require time and effort, the favorable interest rates and larger loan amounts make it a worthwhile endeavor for ambitious entrepreneurs.
In conclusion, business loans from banks offer several significant advantages, including low-interest rates and the potential for larger loan amounts. While the stringent requirements and lengthy application procedures may seem daunting, the benefits outweigh the challenges. By demonstrating financial stability and providing the necessary documentation, entrepreneurs can position themselves for success and obtain the financing needed to drive their business forward.
Credit Unions
Credit unions are best for businesses that want a locally-based lender for more personalized attention. Credit union loans are usually smaller than those from big banks; however, many come with perks. Since they are local, your business could benefit from name recognition or a pre-established connection with the credit union.
Additionally, credit unions have more autonomy in deciding who qualifies for a loan, so they may be able to lend to you even if a big bank has turned you down. In today’s financial landscape, credit unions are emerging as an appealing alternative to traditional banks. With their focus on community and member ownership, credit unions offer a unique connection that is often lacking in the banking world. By joining a credit union, individuals become part of a cooperative that prioritizes the financial well-being of its members.
One major advantage of credit unions is their personalized approach to lending. Unlike big banks, credit unions are known for their flexibility in extending loans to their members. This means that even if you’ve been turned down by a major bank, you may still have options with a credit union. Their ability to consider individual circumstances and provide tailored lending solutions sets credit unions apart from their larger counterparts.
Moreover, credit unions offer a higher level of autonomy in decision-making. Since they are member-owned institutions, credit unions have the freedom to make lending decisions based on their community’s needs rather than just meeting profit targets. This not only fosters a sense of trust between the credit union and its members, but it also allows for greater inclusivity and a fairer approach to loan approvals.
If you’re seeking a more personalized banking experience or are in need of financing but have been turned away by big banks, consider connecting with your local credit union. By doing so, you’ll not only gain access to comprehensive banking services but also become part of a financial community dedicated to serving its members’ needs. Whether it’s a car loan, a mortgage, or a personal loan, credit unions may be the solution to your financial needs. Additionally, managing your business finances through a credit union can provide stability and support, especially when traditional banks fall short.
Grants
Grants are best for business owners that have the time to apply and wait for funding in exchange for money that it does not have to pay back. Financial resources are crucial in obtaining grants, as they provide the necessary support for underrepresented communities, such as women, minorities, and veterans. Government agencies, corporations, and nonprofit organizations sometimes offer grants to a specific classification of business. For example, numerous business grants are available for companies owned by women, minorities, and veterans.
The time involved in finding, applying for, and waiting for funding can be extensive. You will likely need to employ creativity in your application to ensure you stand out among the competition. Furthermore, it is crucial to have a clear understanding of the requirements and criteria set by each funding opportunity. Take the time to thoroughly research and familiarize yourself with the objectives and priorities of the funding organization. This will enable you to tailor your application to their specific needs and increase your chances of success.
In addition to the application process, the waiting game can be quite challenging. Funding decisions can take weeks, or even months, leaving applicants hanging in suspense. It is important to remain patient and not lose hope during this time. Use this waiting period to continue exploring other potential funding options and refining your proposal if necessary.
Finally, standing out from the competition requires creativity. Funding organizations receive numerous applications, so finding a way to make yours memorable is crucial. Consider incorporating innovative ideas, providing compelling evidence of the impact of your project, and showcasing your unique perspective. Remember, this is your opportunity to make a persuasive case for why your project deserves funding.
Finding funding is undoubtedly a time-consuming and competitive process. However, with thorough research, tailored applications, patience, and a touch of creativity, you can increase your chances of securing the funding you need to turn your dreams into a reality. So, give it your best shot and persist in your efforts – you never know when the perfect opportunity will come your way.
Crowdfunding
Another popular avenue is crowdfunding, which allows you to reach out to a larger audience for financial backing. In addition to crowdfunding, business credit cards can be a valuable tool for covering small expenses and managing short-term financial needs. Websites like Kickstarter and Indiegogo give you the platform to showcase your idea and attract investors who are eager to support new and innovative projects. Crowdfunding also acts as a marketing tool, creating awareness and buzz around your enterprise.
Crowdfunding is best for businesses that are ramping up or that have an innovative product or idea that can generate excitement. Whether you are in the early days of entrepreneurship or require funding to expand or pivot in a new direction, crowdfunding websites can help you connect with multiple investors. Each contributes a percentage of the financing you seek in exchange for equity or other perks.
Crowdfunding websites have revolutionized the way entrepreneurs and innovators seek funding for their projects. Whether you’re looking to expand your existing business or explore a new direction altogether, these platforms provide a powerful tool to connect with multiple investors.
The concept is simple: you create a campaign outlining your project and the financing you need. Interested individuals can then contribute any amount they see fit, often in exchange for equity in your company or other attractive perks. This not only allows you to access capital that might be otherwise out of reach, but it also helps you to build a community of loyal supporters and advocates.
One of the key advantages of crowdfunding is the vast potential reach it offers. These websites have a broad user base, and your campaign can be seen by people from all over the globe. This presents a unique opportunity to tap into a diverse pool of investors who might be interested in your venture but may not have discovered it through traditional financing channels.
Moreover, crowdfunding provides an opportunity to validate your ideas and gain valuable feedback from real users. By putting your project out there and presenting it to potential investors, you can gauge interest and gather insights that can shape your development plans. This immediate market validation can be a game-changer for entrepreneurs, allowing them to fine-tune their offerings based on the direct feedback of the target audience.
Overall, crowdfunding websites offer a dynamic and accessible avenue to secure funding and support for your projects. They provide a level playing field for entrepreneurs of all backgrounds and can be a gateway to success in today’s competitive business landscape. So, if you’re ready to take your ideas to the next level, consider leveraging the power of crowdfunding and unlock the potential for growth and innovation.
The Small Business Administration (SBA)
The SBA is best for businesses that don’t qualify for a standard bank loan but want lower interest rates and can wait for funding. Venture capital firms, on the other hand, provide funding for fast-growing startups with high potential for profitability. The Small Business Administration (SBA) does not dispense funds directly. It guarantees a wide array of loans offered by banks and other lenders.
Some loan programs are restricted to a specific objective, like buying equipment or real estate, while others are more general. The Paycheck Protection Program (PPP) is an SBA-backed stimulus bill enacted by Congress to provide emergency relief to companies affected by the pandemic. The bill includes forgivable loans up to $2 million for companies that experienced revenue loss of 25% over the same quarter in 2019. (To learn more about the program or apply for PPP funds, fill out our online application.)
Online Lenders
Online lenders are best for businesses that need cash quickly and lack solid credit scores or satisfactory business history to qualify for traditional loans. Venture capitalists also play a crucial role in providing funding to businesses, often involving giving up some ownership and control in exchange for investment. Online lenders offer standard term loans and lines of credit. Some also provide alternative financing products like merchant cash advances (MCAs) and invoice factoring.
These are typically faster and easier to apply for than other sources of capital. They require no collateral and are available to businesses with low credit scores.
If you’re a small business owner, you understand the challenges of managing cash flow. Sometimes unexpected expenses pop up or opportunities arise that require quick funding. Having a low credit score can further complicate matters, as it limits your access to traditional sources of funding such as bank loans. However, there are still options available for small business owners with low credit scores.
One option is to consider alternative lenders who specialize in providing loans to businesses with less-than-perfect credit. These lenders often have more lenient requirements and are willing to take a chance on businesses that traditional banks may overlook. While the interest rates may be higher, accessing quick funding through these alternative lenders can be a lifeline for small business owners in need.
Another option to explore is securing a business line of credit or a business credit card. These can provide a flexible source of funding that you can tap into when unexpected expenses arise. Building a good payment history with these credit accounts can also help improve your credit over time, making it easier to access traditional funding in the future.
Lastly, it is crucial for small business owners to actively work on improving their credit scores. This can be done by consistently making on-time payments, keeping credit card balances low, and addressing any errors or discrepancies on your credit report. Patience and perseverance are key when it comes to rebuilding credit, but the rewards can be significant in the long run.
In conclusion, while having a low credit score may present challenges for small business owners, it does not mean that all hope is lost. By exploring alternative funding options, utilizing business credit products, and actively working on improving your credit, you can still find ways to manage your cash flow and seize opportunities for growth. Remember, it’s never too late to take control of your financial future and set your business up for success.
The Bank of Mum and Dad
Starting a business is an exciting venture, but it often comes with a hefty price tag. For many aspiring entrepreneurs, funding can be a major hurdle. That’s where the Bank of Mum and Dad comes in. In recent years, this concept has gained popularity as a way for entrepreneurs to access financial support from their family members.
The Bank of Mum and Dad is essentially a term used to describe parents or family members who provide financial assistance to their children to help them start or grow a business. This informal lending method has become a lifeline for many entrepreneurs, particularly those who may face difficulties obtaining loans from traditional financial institutions.
So, how can you tap into the Bank of Mum and Dad to get funding for your business? Firstly, it’s important to have a solid business plan. This will give your family members confidence in your idea and make them more likely to invest in your venture. Be prepared to discuss your business idea, market potential, and financial projections to show them that you have thoroughly thought everything through.
Secondly, it’s crucial to have open and honest conversations with your family members about your business plans. Discuss your financial needs, risks, and potential returns to ensure both parties are on the same page. Remember, the Bank of Mum and Dad is not an unlimited source of funds, so it’s important to establish clear terms and conditions for repayment or equity stakes in your business.
In conclusion, the Bank of Mum and Dad can be a valuable source of funding for aspiring entrepreneurs. By presenting a solid business plan and having transparent conversations with your family members, you increase your chances of receiving financial support for your business. However, it’s important to approach this option with caution and treat it as a professional arrangement to maintain healthy family relationships in the long run.
