5 Ways to Fund a Small Business
- One of the most common ways of funding small business is through bootstrapping or using your own savings.
- The traditional way has been to get loans through a bank, angel investor, or venture capitalist.
- Crowdfunding has become popular in recent years, as entrepreneurs can leverage technology.
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Starting a small business is an exciting journey, but can also be daunting. A significant hurdle for many entrepreneurs is getting funding. Where do you begin when it comes to financing your business? Fortunately, there are various ways you can fund your small business, and it’s all about finding the right option for you. Here are some of the most common and practical ways to fund your small business.
The most common way to fund your small business is to do it yourself through your savings or credit cards. This is also known as “bootstrapping.” This phrase originates from the late 1800s adage “to pull oneself up by one’s bootstraps.” It means starting and running your business with little to no outside funding, relying on your own resources and the revenue generated by the business to keep things moving.
This option is common for many small business owners, especially if they don’t have a solid business plan to present to banks or investors. While bootstrapping means you retain control of the business, it can be difficult to scale up without any outside money. It can also be tough to weather economic downturns or other unexpected challenges if there aren’t enough funds in your business bank account.
Crowdfunding is a modern way of raising money for your small business or startup by collecting small amounts of money from a large number of people. With the rise of online crowdfunding platforms such as Kickstarter, GoFundMe, and IndieGoGo, small businesses can leverage their social networks to seek funding for their business ventures.
However, it’s essential to have a strong online presence and a compelling pitch to raise money through crowdfunding.
3. Small business loans
Getting a small business loan remains a popular option for many small business owners. A small business loan is an amount of money borrowed from a financial institution or a lender to cover the costs of starting, operating, and expanding a small business.
Loans typically require a good credit score, collateral, and a business plan, but they can provide a large and reliable source of funding. The government offers support for small businesses by directing them towards preferred lenders that provide Small Business Association (SBA) guaranteed loans, which provide low-interest funding with long repayment terms.
4. Angel investments and venture capital
Angel investors and venture capitalists typically invest in startups that show high growth potential. They are usually high net worth individuals or organizations that invest in the early stages of a business and provide funding in exchange for ownership equity or convertible debt.
Angel investors are more flexible than traditional bank loans — they are not focused on collateral or debt repayment. However, they require a significant stake in the business, as well as control over major decision-making aspects.
For-profit businesses often overlook the option of small business grants as a source of financing. Still, both nonprofit and not-for-profit organizations offer various grants suitable for different business owners.
Small businesses can leverage grants by applying for funding from government agencies, private foundations, and corporate initiatives. However, applying for grants requires making a well-defined proposal to the grantor, and the screening process is usually competitive.
Ultimately, the best source of financing for your small business depends on your business’s individual needs and the repayment expectations you’re willing to deal with. Other funding options available include merchant cash advances, family and friends’ investments, lines of credit, and personal loans, among others. When considering your options, remember that financing your small business isn’t about finding the perfect solution, but instead, finding a solution that works for you. With the right funding option, you can take your small business from the initial stages of creating a business plan all the way to success.
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