How do I raise money to grow my business? It’s the question that keeps you up at night. Well, we’ve done the dirty work for you, thoroughly investigating the avenues worth pursuing. Here are the three sources of funding early stage companies and small businesses should consider exploring.
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1. Crowdfunding
Crowdfunding is an incredibly popular way to raise money. Many designers are using this approach to secure funds to pre-fund their production and/or grow their business. Kickstarter and Indiegogo are the most visible platforms with the highest opportunity for impact and reach.
Deep Dive: How to Prepare for a Successful Kickstarter Campaign
My business partner and I have definitely considered this route thanks to the encouraging success stories of other entrepreneurs. However, our primary concern is making sure that we treat our “backers” well. What can we give them in return for their support? Common options include pre-buying the product or offering up exclusive products such as t-shirts.
2. “Non-bank” loans
A typical small business loan varies between $130,000 – $140,000 (Source). If you don’t qualify for a small business loan from your bank, research alternative loan options. Although alternative lenders won’t give access to the same level of capital as bank loans supply their turnaround is much quicker and the service more personalized.
Insider Tip: Capital One and Chase are the most focused on small business. PayPal Capital also offers short-term funding based on sales history.
3 types of alternative lenders:
- Peer-to-Peer Lending: These online marketplaces allow individuals or companies to invest in small businesses. Check out Prosper.com or LendingTree.com.
- Working Capital Loans: These loans are typically used for operational financing or day-to-day necessities for keeping the business afloat. Beware of fluctuating interest rates when pursuing this option.
- Merchant Cash Advance: Organizations like Square Capital allow small business owners to borrow money in advance of potential revenue in addition to paying a flat fee.
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Insider Tip: The Small Business Association (SBA) is a great source of info on lending. The SBA also manages programs to help small businesses get funding.
3. Equity Financing
If you are willing to share your profits and potentially some ownership of your company, then this might be a good solution. Since we want to retain 100% ownership of our business, we aren’t considering equity financing.
Here are 4 Types of Equity Financing:
- Personal Finance + Friends & Family: This financing option includes personal investment as well investments from your family and friends. Friends and family are usually the first source of investment for entrepreneurs looking to launch.
- Angel Investors: Angel investors typically invest equity financing in early-stage companies and startups with promise to continue an upward growth trend.
- Venture Capital: A venture capitalist will require a percentage of ownership over your company as well as a high rate of return on their investment.
- Small Business Investment Firms: The SBA created the Small Business Investment Company Program to provide venture capital to America’s small businesses (SBIC). Although funds aren’t provided directly by the SBA, the investment companies are licensed and regulated.
Every business is different, and every financing strategy should be as well. As with every decision you make, make sure you do your homework to find the right financing route for your unique situation.
