Last Updated on December 20, 2017 by Tim
All entrepreneurs need money to start their business. However, most traditional bank lenders will not give business loans to startups. So are new entrepreneurs, like you, are stuck in a no-win situation? No, here are the 12 best ways, some new and unexpected, to fund your startup and launch your new company.
Most new startup businesses are not easy to finance. You need creativity, resourcefulness, courage and a bit of good luck to get the financing you need to launch your new company.
The skills and tenacity you develop during your search for business loans will serve you well in growing your startup into a viable and profitable company.
Read on future small business owner:
- SBA and Traditional Bank Loans – These loans are guaranteed by the federal government agency, Small Business Administration. Generally startups are not eligible unless the owners have high credit scores and are willing to pledge substantial personal collateral, such as your house. Most SBA loans are granted to existing firms for expansion and disaster recovery. Your local bank will be the actual grantor of your business loan; however the SBA guarantees the loan. Often this type of financing is called a SBA-backed loan. To get approved for an SBA loan your first need to be rejected. Huh? You must apply and be turned down by a qualifying financial institution to be eligible to apply for an SBA loan.
- Microloans Non Profit Foundations – Most micro lenders are social-focused lenders. Their missions are to stimulate local economies and help disadvantaged communities. This type of startup funding is good for individuals with poor or no credit history and no ability to secure their business loan with collateral. Another advantage is that these types of loan applications require less paperwork and are more flexible in their approvals. Loans are $50,000 or less for startups. Bonuses from microlenders are business consulting and training. There are hundreds of microlenders across America; these are some of the most significant micro lenders to contact Grameen America, LiftFund and Opportunity Fund
- Business Grants – Both government and private foundations are sources of grants to support new technology and social needs. You can search online thousands of available federal grant programs on Grants.gov. Here’s a list of small business grants for women
- Friends and Family – Most business investors will want you to have already gotten other investors, possibly from family or friends, to demonstrate your credibility. These professionals figure that if your family and friends invest in your business idea, it has real merit. Most early-stage startups get launch capital this way.
- Credit Cards and Personal Loans – While this method is easy, if you have decent credit and have credit cards already, it can be expensive due to high-interest rates and fees. The positives are that you are not selling, nor trading any company equity. Be sure to have a high enough profit margin for your products or services to be able to absorb the credit card fees. If you have begun your new venture as a side gig, or part-time business, and can show a year’s worth of transactions online, you may succeed in getting financing from my recommended review of Kabbage.com loans
- Crowdfunding – In 2016 the JOBS act eased the SEC Security Exchange Commission’s regulations to allow companies to issue securities (stocks) to be sold for startup capital during crowdfunding campaigns. Online sites such as Kickstarter enable inventors to get pledges, which are pre-buys or donations to get businesses launched. Here’s an example, you want to raise $15,000 in 30 days. You set up a campaign and then send the URL link to your family and friends who then pledge money. It is best used for single, one-off donations for books, inventions and new products. To date over 100,000 people have invested by donations to fund startup business ideas.
- Barter Trade Equity or Services – An excellent option for those entrepreneurs who have in-demand skills that they can “pre-sell” for either cash or services. An example would be getting office space leased at no cost in exchange for becoming the office building IT department. Professional such as accountant and attorneys have used this technique successfully. To trade equity and future earnings for startup capital to launch is called venture capital and can come from individuals, VC firms or angel investors. Your legal business structure will need to be a corporation, with stock shares, instead of an LLC – Limited Liability Company to get this type of funding. Get a Legalzoom promo codes to save 10% on all legal services. To attract these types of investors be clear, and brief in your business plan presentation and offer an exit strategy for yourself. This is a complicated process and is hard to get approved.
Here are some tips to win over venture capitalists:
Add mature team members, with some gray hair is good to help ease investors fears about your team’s ability to weather tough economic times. The age and experience of these people adds to your startups credibility.
Forget about Fads. Instead show your long-term commitment to your industry of choice. Investors plan for the long term and want to see that you will are committed to your startup future’s growth.
Be the Expert. Do your homework on your industry, competitors, market trends and develop a detailed sales, marketing and distribution plan. This will demonstrate your expertise and will help to convince investors of your ability to make your startup profitable.
- Self-funding – Now, with the advent of online services and low cost labor, startup costs are at an all-time low. Thus, you may be able to fund your startup, now referred to as bootstrapping. You can invest funds and proceed with your business development as you can save up resources. Alternatively, you could sell some of your assets, cars, jewelry or collectible, to get the cash needed to start. Once, I sold my car to launch a company. I figured my new product line would make more money than a car. I was right. The $5,000 I got from the car sale went into building a business that made over $50,000 yearly.
Here are some bootstrapping ideas to start startup costs:
– Defer large capital purchases – instead, rent or borrow equipment
– Cohabitate with other offices and companies to reduce office and warehouse rent
– Cut out travel expenses by teleconferencing and online meetings
– Include interns from local business schools as part of your employee team
– Share office supplies and computer equipment and printers
– Hire subcontractors instead of full-time employees where possible.
– Use low-cost marketing tactics such as referral programs and word of mouth instead of expensive display advertising
– Get your website ranked in organic search to reduce or eliminate pay per click ad budgets online
- Local Business Investor Groups – Most US metropolitan area have groups of investors who are high-net-worth and want to support startups. They formed a group of syndicate sums up to a million dollars for qualified startups. Find these on site such as Gust and with networking both locally and in your industry. Follow these tips on how to protect your business idea without a patent – before your pitch meeting.
- Venture Capital Firms – Although not open to startup funding, some companies have obtained seed capital from VC firms. Companies such as Accel Partners do invest in concepts and startups for larger ventures of a couple of million or more.
- Startup Incubators and Accelerators for Seed Funding – These organizations are created to nurture and grow new companies and technology. They are often associated with universities, community development groups and sometimes large corporations. Free resources and training are provided, and sometimes seed funding is available.
Advance on Royalty Payments – Get a large customer or complementary business to your new company to pay you an advance on royalties that you assign to them. Also, called early licensing or white-labeling agreements, which means that allow a manufacturer to produce your product as if they were the creators.
About the Author:
Marsha Kelly sold her first business for more than a million dollars. She has shared hard-won experiences as a successful serial entrepreneur on her Best4Businesses blog http://best4businesses.com. Marsha also regularly posts business tips, ideas, and suggestions as well as product reviews for business readers. As a serial entrepreneur who has done “time” in corporate America, Marsha has learned what products and services really work well in business today. You can learn from her experiences from shopping the internet for tools, supplies, and information to build your businesses and improve lives financially.