It’s no secret that one of the toughest parts of opening a new business is raising capital to get it off the ground. Traditional bank loans can be hard to come by when it comes to startup funding, whereas individual investors often want too much control.
If you’re looking for investors to give your startup company a cash infusion but haven’t had any luck, it’s time to find alternative options. There are plenty of non-traditional ways to get startup capital — and even ways to launch your new business without it.
Here are five creative ways to fund your startup without investors or traditional bank loans:
Crowdfunding has become a popular way to get startup investments, with this funding method taking off ever since the JOBS Act allowed it to be used to offer and sell securities to the general public.
The advantage of crowdfunding is that you have thousands of potential investors to connect with. Getting them to pitch in is another story, however. You’ll have to promote your startup company in a way that lets contributors know you have the skills and expertise to be successful — and the wherewithal to pay them back.
For business purposes you’ll want to use one of the following two crowdfunding options:
- Debt crowdfunding: Under this model, contributors act as individual lenders and are paid back in monthly installments.
- Equity crowdfunding: This option gives contributors shares of your company in exchange for investments.
2. Friends and Family
It’s never easy asking family and friends for startup investments. It’s not always a great idea, either. The cliché “never do business with family or friends” is grounded in more than a little truth.
But if you do seek business startup funding from family or friends, follow the same rules as any other funding source. Give them detailed information on the business, its goals, its risks and how you intend to pay them back.
Martin Zwilling, founder and CEO of Startup Professionals, a provider of startup consultant services, wrote some important tips on borrowing from family and friends in a Forbes article:
- Proactively engage each potential investor by asking them for advice.
- Sell your idea in a way that makes business sense and shows you’ve done your homework on customers, competitors and costs.
- Demonstrate your own personal financial commitment and progress by letting your family and friends know you’re also putting up money — and risk.
- Provide details on how you intend to use the requested funds.
3. SBA Loans
The U.S. Small Business Administration is an obvious choice for those who seek startup business funding because it backs loans from banks, credit unions and other lenders. SBA loans are only available to business owners who’ve applied for conventional loans and been rejected.
The amount of money you get depends on the loan type. Amounts range from a maximum of $5 million for most SBA 7(a) loans to $350,000 for SBA Express loans. The type of loan also plays a part in your fees, interest rates and maturity terms.
To get approved for an SBA loan, you’ll need to provide several documents, including:
- Loan application
- Personal financial statement
- Balance sheet and profit/loss statements
- Projection of income and finances
- Signed business U.S. tax returns for the previous three years
- Signed personal U.S. tax returns for the previous three years
Because SBA loan applicants must provide a few years’ worth of financial documents — and have a credit score of 680 or higher — it can be difficult for startups to get funding through the agency.
4. Seek Business Capital
An important step in the startup investment process is getting the right help from the right people. Seek Business Capital lets you do that by providing consulting services and funding procurement to small businesses nationwide. It handles the behind-the-scenes financing work so you can focus on refining your product or service and reaching the right customers.
Here are a few things you can expect working with Seek Business Capital:
- Speed: The funding procurement service gives you a funding estimate within two hours as well as the potential for same-day funding approvals.
- Transparency: Seek Business Capital’s industry experience and proprietary technology lets it evaluate your business on its performance and give an honest assessment of its ability to get you financing. You’ll be able to understand every step of the process, with no upfront or hidden fees.
- Value: You only spend money on what you need and pay interest on what you use.
- Commitment: The relationship you form with Seek Business Capital lasts beyond the initial financing phase. It extends into the growth of your company and its future financing needs.
5. Small Business Grants
While the federal small business grants application process can be long and daunting, it is definitely worth it for the possibility of getting free money from the government to start your business! The U.S. Small Business Administration offers over a thousand grants for small businesses that are run by women, veterans, or minorities. If you meet any of these characteristics, it’s definitely worth applying in order to maintain as much oversight and control over your business as possible.
6. Local Grants
If the federal small business grant program is too daunting for you or you don’t think that you would get approved, there are still other options out there that might be more realistic. There are also local entities that give out grants or hold contests for startup funding. Since these resources are local instead of nationwide, the demand will be way less, and you will have a better chance of getting funding through these means. Try checking with your local Chamber of Commerce or Small Business Association to see what kinds of opportunities they offer for individuals looking to start their own businesses. Many new business owners aren’t even aware that these opportunities are out there, so you are definitely on the right track by doing the research beforehand to ensure funding for your startup!
You don’t always need a pile of cash to get a business off the ground. Sometimes it just takes hard work, the right idea and the right connections. This is where bootstrapping comes in. Bootstrapping basically means operating on a shoestring budget at the beginning and growing through cash flow.
One advantage of bootstrapping is that it lets you own 100 percent of your business because you don’t have outside investors with any skin in the game. You alone determine the direction of your company, which means you can change your mind and make big decisions without being beholden to investors.
But there are potential trouble spots. Alejandro Cremades, author of “The Art of Startup Fundraising,” listed the risks of bootstrapping in an article for Forbes:
- The chances of survival are slim if you face the prospect of running out of money before you have a chance to build up your business.
- It’s harder to grow without money to spend on marketing and product development.
- The lack of outside investors also means you might be missing out on valuable advice from people with financial expertise.
The Bottom Line
The route you take to get startup business funding is largely dependent on your financial situation. If you don’t require much overhead or working capital, then bootstrapping might work. If you have a solid business plan in place but not much credit or financial history, consider crowdfunding or Seek Business Capital.
Before settling on the right option, research each one thoroughly to ensure you get the right fit and the best financial terms.
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