The first step to funding your small business is to ask yourself what you want. Do you want a loan? A partner? Investment capital? Or do you want to bootstrap it and run on sweat equity for as long as possible before seeking outside help?
Funding is different for every entrepreneur. But understanding what each option entails will help guide the way. Here are some tips on finding funding for your new small business.
1. Loans
When you’re starting a business, the most logical funding source is your local bank or credit union. After all, banks are in the business of lending money to people with good credit and businesses that sound solvent enough.
So what’s the catch? Well, for one thing, banks aren’t risk-takers; they like to lend to businesses that are already successful or at least have a good chance of becoming successful.
2. Partnering with an Investor
This financing method is similar to borrowing money from the bank, except that instead of getting a loan from one or more banks or credit unions, you are borrowing funds from an investor – a person who wants to invest in your company because they believe in its potential.
3. Grants
Grants are a great option if you don’t have a lot of assets to leverage for collateral or if your credit isn’t great.
But there are some strings attached. Generally, the government will want you to prove that by giving them money, they’ll be helping to create jobs in your local community.
4. Crowdfunding
Crowdfunding is another option, but it’s one that comes with its own set of challenges. For example, if you’re trying to fund your small business with crowdfunding, you’ll need to give rewards – items or services produced by your company that people can receive in return for their donations.
5. Bootstrapping
Finally, you may be able to fund your small business by keeping costs low and charging for your products or services from the beginning. This method is usually only successful when you have a great idea that’s patented or protected.
In any case, it helps to have a good business plan before you start approaching investors, banks, or other sources of funding. Understanding who you’re selling to, what they want, and how you can give it to them will help streamline the process.