Small business startups have numerous opportunities to secure financing.
These opportunities can secure amounts from a few hundred dollars to the millions, giving businesses capital for everything from rent to inventory. What differs is how business owners receive funding and where the money comes from.
This article shows you 6 ways to finance your startup small business and what you can expect when negotiating for funding.
Banks Offer Standard Small Business Loans
Banks and traditional institutions provide small business loans daily–it’s their bread and butter.
Business funding through a bank requires that you do some homework and preparation. A bank requires that you submit a business plan, showing how their investment will be used. They will look at your personal credit and other factors too.
The benefit of using a bank for funding for small businesses is the security of the loan. With all the boxes checked, you can get money in a few weeks.
Check with your local bank or credit union to start this process.
Financial Technology Lenders Provide Fast Funding
Online financial institutions (Fintech) are similar to traditional banks but have more flexible loan opportunities.
Instead of requiring extensive paperwork, Fintech companies base loans off metrics. They look at your website and earnings instead of your personal financial history. For e-commerce vendors or those who want funding more quickly, Fintech is an excellent option.
You’ll likely want to start your search by looking at PayPal, Ondeck, and Kabbage.
Government Loans Provide Reliable, Affordable Financing
Federal and state governments set aside large sums of money to support small businesses.
For example, the Small Business Administration (SBA) has a variety of loan programs for various industries. These loans offer a lower interest rate and the money is government-backed, making it reliable.
You’ll also likely find criteria-specific loans, like loans for businesses owned by veterans, women, and different racial groups. These types of loans can be helpful in securing funding in a highly competitive market.
Be prepared to experience a long wait time when securing a loan through this method since many applicants will be competing for the same loan in limited supply. You’ll need to fulfill strict requirements, like meeting a threshold in sales per year, to be eligible for securing a loan through government-supported programs.
Loan providers for this type include the SBA, every department of the government, and your state government.
Grants Provide Free Money
Small business grants provide a boost to any business with no strings attached.
Applying for these grants is the only hurdle to getting the money. These funding opportunities are often based on need and differ on a case-by-case basis. To secure a grant, you’ll likely need to explain what your business does and what the money will be used for.
While grants may not match a loan in its monetary value, grants are free money that offers business owners a leg up on the competition.
Finding sources for these grants will vary. Suppliers include organizations from the SBA to non-profits. Grants are often differentiated based on your industry and small business startup size.
Research several grant providers and apply to as many as possible to increase your chances for success.
Crowdfunding Secures Direct Support from Consumers
Crowdfunding takes the benefits of grants and combines them with the digital age.
This form of business funding is run through a crowdfunding site like Indiegogo or Kickstarter. To get started, you’ll want to put information about your product or idea on a crowdfunding site and promise contributors early access.
However, there’s a catch to crowdfunding. Most websites take a cut of the investments and refund crowdfunders if the initial funding goal isn’t met. If a goal isn’t met, you won’t receive any funding. The good news is there is no limit to what type of business venture can receive contributions through crowdfunding.
The cost to business owners is only time to set up an account and build a marketing plan to garner interest.
Peer-to-Peer Investment Offers New Opportunities
Sometimes it’s easier to convince colleagues to invest than it is financial institutions.
Peer-to-peer investment is a method of funding that relies on people who you know personally. This method of securing funding gets the benefit of directly reaching your investors and helping them to better understand your product or service.
Investors come in the form of family, friends, business partners, acquaintances, and everyone in between.
Angel investors, individuals who invest in small businesses often, are people with capital on hand that’s ready to invest. Angel investors can give your business instant finances, making it easier to get your small business startup off the ground.
Many peer-to-peer investors will likely want a stake or share in your business. Each investment secured through this method will vary depending on the stakeholder’s interest and criteria for investing.
You’ll want to note that relying on friends and family for finances can affect your relationships. This detail may affect your decision on whether or not you’d like to receive funding through this method.
Use websites like the Angel Capital Association to find angel investors.
Business Advice from Setup to Startup
Our articles cover a variety of small business topics, from business funding to marketing.
With our straightforward advice, you can avoid common business mistakes or find different ways to set up your business for success.
