In this article:
- Personal loans
- Small business loans
- Make a trade
- Find investors
- Small business grants
- Startup incubator or accelerator
When starting a new business, finding the capital to back you can often be the hardest part. But funding your new startup doesn’t have to be difficult. You just need to know what options are available to you and where to start first.
Depending on how large you expect your business to be from the start, you may be able to begin small and scale up later as needed.
This may even allow you to start the business from your own savings and then reach out to other sources like investors or your personal network down the road.
Many avenues exist for funding your new business, so if you aren’t able to do it on your own, don’t fret. We’ll guide you through some of the best options out there.
Bootstrapping a startup business
Bootstrapping is starting with the bare minimum that you can get by on. You don’t even need to save up a huge amount of capital to get going. You simply start with the resources you already have at your disposal.
Until you grow your business sufficiently, everything you earn goes back into the business to help you increase your resources and capability to provide results/products for customers.
A great example of this is starting a web design company. Let’s say you have built your own website before and you already have the software, tools, and know-how to do this.
You can choose to start small by offering your services at a low cost to people in your personal network and grow your business from there.
The same can go for any type of business that you already have the minimum effective resources for.
Use your own savings to fund your business
Maybe you have a grander plan for your business that requires a little more capital to start up than bootstrapping would allow but you don’t want to go in debt to start your business.
You can make a plan to put aside any extra earnings from your current day job into a savings account, and save enough for your startup costs before you launch.
Another option here could be to pick up a second or third job to help save the money you need to go after your dream of entrepreneurship.
Here are some tips you can use to help you save the money you need to start your business:
- Make a list of your needs and wants. Determine which wants you are willing to part with and put your money that would have gone to those into savings.
- Avoid personal debt (i.e. car loans, credit cards, personal loans).
- Create a realistic budget and follow it.
- Learn to sacrifice unnecessary luxuries or “wants” and derive satisfaction from living debt-free and saving for your dream business.
- Automatically deduct a certain amount into a dedicated savings account each paycheck so you don’t have it available to spend from your checking account.
Personal loans from family, friends, or network
Review your personal network and determine if there’s anyone you would be willing to borrow money from to help fund your new business.
Yes, we said “anyone you would be willing to borrow money from.” This is actually as important as the consideration of which friends or family members actually have the money and would be willing to invest in your business.
It’s important to think long and hard about borrowing from friends and family. Be wary of those who may want to have a say in business decisions due to their “share” and make sure you have a solid plan of action for paying them back as quickly as possible.
Finances can cause a strain on any relationship, so don’t enter into any agreement that is going to hurt your relationships.
Small business loans
Small business loans are a common resource for starting up new businesses, but not every bank or lender is going to be willing to assist you.
When you apply for a small business loan, you will need to have a detailed business plan that outlines how you will make good on your debt.
You may also need to offer personal assets as collateral for the loan you are taking out. Keep these things in mind if you pursue this option.
Check out our guide to small business loans to learn how to apply, what types of loans are best, and tips for making it happen.
Make a trade
You can trade equity or services to help mitigate some of the costs of your new business. You might not be able to completely get by on trades, but it can be helpful to lower initial startup costs.
For example, let’s say you are starting a new gym, but you’re going to need marketing services to get the word out. Marketing is expensive, so you find an advertising agency that is willing to trade their services for gym memberships.
Be creative. Don’t give up if your first choice turns you down. If you’re interested in this option, ask around at several places before trying another method.
Crowdfunding your startup business
Crowdfunding is a way to raise money, generally online, from people or companies that are interested in your project.
Most of us are familiar with the GoFundMe campaigns that get shared on social media to help raise money for charity. That’s just one crowdfunding platform.
Crowdfunding for businesses is a little different in that you can’t always go the route of asking for donations.
Different types of crowdfunding
Investment-based crowdfunding: Someone invests in your business and receives a stake in your shares.
Loan-based crowdfunding: This is also referred to as peer-to-peer or peer-to-business (P2P or P2B) lending. Individuals will lend you money in return for a set interest rate.
Reward-based crowdfunding: Individuals will give to your business in exchange for some kind of reward like free samples, passes, or discounts for your services.
Donation-based crowdfunding: You receive no-obligation donations from those interested in helping you out. This form of crowdfunding is generally used for charity but can be used for startups as well (depending on the platform you use).
Check out these crowdfunding sites to get started:
- Crowd Supply
Find investors for your startup
Crowdfunding and small business loans aren’t the only ways to get investors for your business. You can also seek out venture capitalists or angel investors to help you get started.
Venture capitalists (VCs) are generally looking for businesses with large growth potential. VC firms generally raise money from a variety of sources and find the perfect investment opportunities to put that money into. In return, they make money on the interest of the loan they provide and/or have stakeholder claims in your business.
Angel investors are likely a more suitable option for small business startups. They typically have spare funds available to invest and look for opportunities to gain a higher rate of return than they would get from a traditional investment.
The main downside to either of these investor options is that they are usually looking for a large stake in the companies they help.
Make sure you read the agreements carefully and don’t get into a deal that will kill your business before it gets legs of its own.
Small business grants
Depending on the type of business you are starting, you may be eligible for a small business grant.
Grants are basically “free money” that you can use to invest in equipment, improvement of commercial premises, startup inventory, office supplies, or whatever other business needs you have.
The U.S. Small Business Administration (SBA) helps businesses find opportunities to receive grants. See if they have something you can qualify for.
Startup incubator or accelerator
This last option is to find a startup incubator near you. Startup incubators are programs designed to help small businesses get started and find success.
They are typically run by non-profit organizations, sometimes associated with business schools or other universities.
The nature of an incubator program is that they will provide entrepreneurs with some of the resources that would otherwise be difficult to acquire, like a workspace, startup funds, networking opportunities, legal counsel, management training, business training, and more.
You may also like: Best practices for launching a small business
Solo is the easiest way for small businesses to pay and get paid.
Solo mobile app is now available for everyone
Scan QR to download the Solo App
Solo mobile app is now available for everyone