Like most new entrepreneurs, you may be thinking, “How do I get capital to start a business?” or “How much money do I need to start my business?” These are important questions when it comes to startup business financing.
Billion-dollar idea or not, you need a sufficient amount of money to make your startup a successful one. Not all new businesses become a success story, so investors and lenders are not exactly lining up to fill your coffers.
So, what are your options? In this article, we will take a look at several, as well as some things to consider before pursuing them.
5 Avenues for Startup Business Financing
Do banks give loans to start a business? The short answer is, “Yes.”
That said, it might not be easy to secure traditional startup business financing from a bank. They often require collateral, industry experience, and pedigree. Luckily, you can look toward private lenders for business finance solutions and startup loans.
Traditional commercial loans aren’t the only way to finance your business, though. Take a look at the following five ways to raise capital for your startup:
1. SBA Loans
Small Business Administration loans for startups are made available by many eligible institutions across the country. These loans might be the right fit for your business, whether for payroll needs, capital expenditure, or startup business equipment financing.
The approved lenders provide startup business loans with no collateral, and the SBA guarantees a significant portion of the loan proceeds. With loan amounts as high as $5 million getting approvals, you’ll have enough time to validate your business idea.
SBA’s online Lender Match tool can help you locate an approved lender.
2. Bootstrapping
If you are uncomfortable with debt, then bootstrapping may be the way for you. Big names like Craigslist, GitHub, and GoPro attribute their initial success to bootstrapping.
Bootstrapping simply involves launching your product with your own funds and building up your business steadily by reinvesting the profits.
3. Crowdfunding
Through crowdfunding, members of the public contribute small amounts to raise capital for your business. Typically, they receive a reward, discounted products, or a small stake in the company to contribute.
Crowdfunding can be an excellent option for startup owners who have poor credit. Remember, though, that it’s a competitive environment, and meeting your crowdfunding goals as a new business owner can be quite the task.
That said, popular crowdfunding platforms like Kickstarter, SeedInvest, and GoFundMe have many success stories.
4. Microloans
Microloan providers lend small sums of money at comparatively lower interest rates. While companies like CDC Finance offer traditional microloans, others like Peerform and Funding Circle are based on the concept of peer-to-peer lending.
5. Credit Cards
You can also use a business credit card for capital and operational expenses. How do you get approved for a business credit card? Simply apply for one (if you have a good credit score). Traditional credit card providers like American Express, Capital One, and Wells Fargo offer a credit line for small businesses. On the other hand, specialized business credit card providers like Brex don’t require guarantees and provide funding with loads of rewards.
Alternatively, if you have a personal credit card with a considerably high spending limit, you can use that for your business needs instead.
What to Consider Before Seeking Startup Business Financing
Taking out a business loan is a big step. You may be personally liable for the borrowed money, which can put your livelihood at risk.
While starting up, following good business and financial practices is essential. Here are a few questions that you may want to answer before starting your fundraising activities.
1. Do You Have a Solid Business Plan?
Successful entrepreneurs always stress the importance of having short-term and long-term business plans. This gives you a vision and a path to follow—and the process of creating this vision begins with research.
Whether you’re starting or venturing into new markets, undertake thorough research before making your first move. By assessing your target market’s potential, you can estimate revenues, allocate budgets, and have clear expectations.
More importantly, this kind of clarity in thought and action will give you an edge while raising funds.
2. Do You Have a Clean Business and Financial History?
As the sole proprietor or co-founder of your startup, you are responsible for the funding you secure. Having a clean record with a good credit score can go a long way to obtaining startup business financing.
Any history of reckless spending, failed ventures, or delayed payments may haunt you whenever you seek loans. However, you can make up for it by having a co-signer with a good credit score or by showing your loan officer that you have a good track record with past business ventures.
3. Are There Any Major Risks in Your Line of Business?
Is your store located in a disaster-prone area? Is your proposed tech solution facing regulatory hurdles? Is the market flooded with similar products or services to those offered by your business?
Even if you turn a blind eye to such telling signs, investors and lenders might find out about them. So, you must understand the magnitude of the risks and find ways to mitigate them.
Lay out these aspects in your funding proposals and business plans. If you know and understand the risks, then you can better spot the solutions and make your startup stand out from the crowd. You want it to be the answer to what is missing in the current market. Begin your journey knowing the risks and rewards of your business venture.
Let Us Help You
While not all startups survive, there are ample opportunities for you to show your mettle. Now that you know how to finance a startup business and hit the ground running, you can turn those dreams into reality.
Check out our Funding Your Small Business e-book online.
Need help with business planning or market research in Arkansas? The Arkansas Small Business and Technology Development Center will assist your small business free of charge. Just reach out to the nearest center.