Finding funding for your small business can seem like a hurdle, but there are various opportunities waiting for you. From bank loans to angel investors, the avenues you can access to find the funds you need are multiple. Here are seven helpful tips that will enable you to find funding for your small business.
Starting, building or growing your small business all require funding. In the earlier stages of founding or growing a small business, funds can be hard to come by.
However, by making use of multiple channels, you’ll find that accessing the capital you need isn’t impossible at all. You can depend on yourself, turn to investors, or secure a loan. Each channel however, requires you to take specific steps.
These helpful tips will help you secure funding for your small business.
- Get a Bank Loan
For many small businesses, a bank loan is the most widely recognized step when it comes to securing funding. But bank loans can be hard to secure. You’ll be competing against various other businesses, all vying for a business loan themselves.
So how can you improve your chances of getting your business loan approved?
Having a good credit score becomes important here. Without this, no bank will be willing to grant your loan. At the same time, you should have assets or credit that can act as a guarantee against your loan.
You should also consider that interest rates on bank loans tend to be high. Securing a bank loan also requires a solid business plan. The loan manager will pore through your business plan, assess your business’ possibility of success, and only then can you secure the loan.
They will also ask for a business budget, as well as information on how you intend to allocate the funds you get from your loan. Banks also view certain industries as being high-risk, while other industries gain loans more easily.
Consider taking all these factors into account and prepare ahead before you go in and apply for a business loan. This will increase the chances of you securing a business loan.
- Angel Investors or Venture Capital
If you can’t get a bank loan, how about turning to an angel investor instead? The process of applying for an investment is relatively similar to that of a bank loan. However, you can also opt for an equity investment instead of a loan.
With a loan, you’ll have to pay back the sum at a higher interest rate. This rate can be as high as 10-13%, and is even higher in some cases. An equity on the other hand, gives the investor control over a percentage of your business, in return for funding.
In this scenario, you won’t be able to retain complete control over your business. But many businesses do great by partnering up with investors, so if this is up your alley, go for it. You can also opt for a combination of a loan and equity, if you want to provide the investor with a lower percentage of control.
Financing your business by bootstrapping removes the need for a loan or investment from third parties. This is a method where you grow the sales and revenue from your business, with the aim to allocate surplus funds back into your business.
This process however, is time-consuming. You’ll need to assess how your current funds are being used in your business. Then create a budget where you cut back where possible.
After cutting back, use the funds you have to market and grow your business. The increase in sales will over time increase your revenue stream. With the help of this revenue, you won’t need to turn to anyone else to help grow your business.
Factoring is another method used by businesses that need funds immediately. In this method, you’ll be selling receivables at a high discount. The discount helps you sell faster, and you can receive funds immediately.
Factoring is used by apparel Store owners who want to reduce their stock, as well as business owners with a low credit score. The benefit of this method is that it gives you the funding you need immediately. However, you will be selling products at a discount, so weigh in whether you’ll be breaking even before you provide discount numbers that could affect business longevity.
For new small business owners, as well as growth-oriented businesses, crowdfunding could be a solution to your financing needs.
Crowdfunding involves going directly to potential customers to seek investment for your products or services. There are various portals online that provide crowdfunding resources for new and old businesses.
What you should consider keeping in mind however, is that the products or services you provide should be value-based and customer-oriented if you want to find funding. You should clearly let the community know what you need the funding for, and how it can benefit them in return.
Spreading word about your crowdfunding campaign across various social media channels will also help you reach your crowdfunding goals.
- Government/Corporate Grants
The government provides grants for businesses that fall within certain categories. Businesses run by minority group, those that fall within certain sectors and industries etc. are applicable for a government grant.
To know whether you can apply for a grant, look at your government website to see if grants are available for your small business. The benefit of grant is that you don’t need to pay the sum back.
If you can’t secure a government grant, why not consider a corporate grant instead. Some corporations offer grants for business owners as well. Look through the websites of leaders in your industry, as well as corporate financial groups. They may have a corporate grant on offer that can help you fund your business.
- Personal and Professional Circles
Another method you can use to secure funding for your business is by asking friends or family. People who care about you and your hopes and aspirations may be willing to lend you money. Depending on the person, they may or may not ask for interest.
Another way to secure funding is by networking professionally. Stay in touch with your colleagues and supervisors from your previous place/places of work. Attend networking events like meetups and conferences. Once you’re there, talk about your business and why you need funding. An investor may be at the same conference and show an interest in you. However, consider genuinely befriending the people in your professional circle.
You can also consider getting a second job to find the funds you need, but this process again, is time-consuming. If you keep working on these channels, approaching each with the kind of knowledge required, securing funding isn’t as hard as you think.
While considering funding options, it is also a good idea to think about business insurance. If you want to learn more about business insurance, you can click here.
- De Silva, KDS, October 25th 2017, ‘5 Tips for Financing Your Startup’, viewed February 17th 2021, https://www.entrepreneur.com/article/303518
- Jones, KJ, October 16th 2019, ‘Small Business Funding: 10 Tips for Getting the Money You Need’, viewed February 17th 2021, https://www.projectmanager.com/blog/small-business-funding-tips
- Staff, ‘8 Ways to Get Money to Start a Business’, viewed February 17th 2021, https://www.freshbooks.com/hub/startup/how-do-i-get-money-to-start-my-business
- Staff, February 6th 2020, ’10 Ways to Finance Your Business’, viewed February 17th 2021, https://www.inc.com/guides/2010/07/how-to-finance-your-business.html