Aug 19th 2022

6 Ways to Fund Your Small Business

No matter where you are in the world, every start-up relies on a good idea and a great team. But access to funding can be a matter of life and death for your business. You cannot undermine the role of financial resources in the success of your start-up. According to data from the US Bureau of Labor Statistics, approximately 20 percent of small businesses fail within the first year… THE FIRST YEAR. One of the top reasons businesses go under is lack of funding, so it’s especially important to know where to turn if you need a lifeline. Whether you already have a start-up or are about to start one, you need to ensure you get funding at the right time. Consider the following funding options to give your company the boost it needs for everything from day-to-day operations, to marketing and branding.

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1. Family and Friends

This can be a great place to turn because it doesn’t generally come with a lot of financial background requirements or other pre-requisites. With personal loans from friends or family, you can often get a better interest rate than from the bank, especially if your credit score is not very good. However, to avoid any difficulties or soured relationships, you should treat this in the same way you would treat a bank loan. Make sure the terms of the loan and the repayment agreements are written down and that both parties agree. Keep in mind, according to the IRS, family members are supposed to charge a minimum interest rate to avoid adverse gift tax consequences. The IRS publishes these Applicable Federal Rates (AFRs) every month.

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2. Banks

Banks are a trusted and well-established source of funding. The bank looks at your credit score and possibly your business plan before deciding to lend you the money to start your business. Personal bank loans tend to have good interest rates and terms, but it may be difficult to qualify for a bank loan, as they often require youtube have ample cash flow and income. This option may be out-of-reach for some borrowers and may take more time than you’d like. Banks also often require collateral to secure the loan. This means you may need to have an asset, such as a home before you can get the loan. If you can't pay back the loan, the bank can take ownership of this asset. Loan rates can vary, so be sure to do your research before selecting a lender. Consider a smaller or local bank, which may be more willing to grant credit and walk you through some of your options.

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3. Credit Cards

Credit cards can provide quick and easy access to capital, with the possibility of rewards. However, while this may be great for short-term needs, if you aren’t certain you can pay off the debt before interest starts to accrue, this can spiral downwards rather quickly. Credit cards often come with high interest rates, that increase even more if you miss a payment. Also, many cards charge an annual fee.

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4. Investor equity

Companies and individuals with money to invest can serve as sources of funding. This can serve as a way to get other people to help finance your new business. Venture capital tends to be an investment company, while an angel investor tends to be an individual investor. You will need to have a good business plan and a good sales pitch to attract these investors, as they typically seek out high-growth companies or companies that are already profitable with good cash flow and a proven model. These investors often offer more than just cash, they offer expertise to help push the business forward. Ways they invest could be through traditional loans, equity sharing, or a combination of both with an option to buy back your equity once a growth target has been made. However, think of any equity deal as a relationship, as you are loaning a stake in your company. Make sure their goals are aligned with yours.

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5. Government Economic Development Grants

There are many Federal, State, and Local grants available to help fund your new business. Do your research online to determine what grants are available and to locate offices that can coach you on making the most of available grants. Also, there are many small business grants available for entrepreneurs in certain categories, for example, female, minority, or veteran business owners. Start your research by browsing the U.S. Economic Development Administration website to find regional office contacts, state government contacts, and other information. 

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6. Crowdfunding

Crowdfunding usually involves asking large groups of people for funds. Allows you access to capital without piling on debt, and the ability to raise money and increase awareness of your brand among potential investors and customers while test-marketing an idea. The individual investors usually receive a gift or the product you’re developing in return for their investment. There are many crowdfunding websites dedicated to this purpose. The platforms may have fees though or take a portion of the money raised. Also, launching a successful campaign often takes marketing resources and time, and platforms have different rules about when funds will be released and what happens if your goal isn't met. If you go this route, make sure you understand how the platform works, the fees, who can invest, and how it could accomplish your specific funding needs.

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Conclusion

Although starting a business can be expensive, there are many different options for raising money. You can leverage your personal finances or you can get other people to invest in your business by finding a venture capitalist, angel investor, or crowds of investors to get the money you need. At TechPeer, we understand the importance and difficulty of funding your business. We also know that building a great website takes resources, and you want to get the best support to grow your business. If you are looking to create, revise, or rebrand your website, contact us so that we can help ensure you get value from the process and receive value from our services. Just take a look at the reviews from our happy customers.