As an aspiring entrepreneur with a good business idea, one of the major challenges in your journey of being a business owner could be how to fund your business idea. Your perfect business ideas and a well-analyzed business plan may never amount to anything if there are no sufficient funds to execute them and get things rolling.
This is why you need to be informed of how you can get money for funding your small business and the criteria demanded to be eligible for such funds. This article will provide you with information, and tips on how you can raise capital for your startup business.
How To Fund Your Small Business
There are tons of available opportunities you can explore to fund your new small business. However, the most important thing is to understand how to harness those opportunities to get your small business running without wasting so much time. Below are ways you can fund your small business:
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Self-Funding
The first thing you want to do as an entrepreneur is to assess your financial ability to know if you are capable of funding your new business. This can be done by observing your business plan and calculating the estimated amount needed as capital for the business.
You can make savings toward the amount if you don’t have up to that currently. Another easy way to raise your business capital is by turning to your inner circle — friends, and family members— for assistance.
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Find Investors
Raising the capital of your small business might be impossible sometimes, especially if you’re a new entrepreneur with huge business ideas. This is where investors come in to render some assistance. As a new entrepreneur, you can approach investors to get venture capital for your business.
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Look inwardly
The first way to get investment for your business could be by looking inwardly at your family members and friends. You can locate someone interested in your business idea and capable of investing in the business.
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Angel Investors
You can get your business venture capital by locating an Angel Investor. This kind of investor is an individual with a high net worth and is ready to invest in startups and growing businesses. In return, angel investors choose to have ownership equity in the business. All you need to do is share your business plan with the investor, present your expense sheet, have a review assessment of the business structure, agree on terms with the prospect (on shares), and get the investment.
Angel Investors can be high-profile entrepreneurs in your industry who’ve taken the backseat in their businesses but now want to invest the money they’ve accrued within years in other businesses. Angel Investors can also be located within the family of big entrepreneurs.
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Seek Introduction From Your Connection
You may have no connection or relationship with anyone capable of investing in your small business. However, your connections can know someone rich enough to invest in your small business. Solicit for introduction from one of your connections who may know potential investors.
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Approach Other Businesses in Your Industry
You can fund your small business by approaching other businesses in your industry for assistance. As an entrepreneur, you may have connections with some of the founders of big enterprises in your industry who are willing to render financial assistance to kick-start your new business.
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Get A Loan
To fund your new small business, you can reach out to organizations that cater to the development of small businesses. These organizations can be owned by the government or private individuals.
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Approach Traditional (local) Banks
To be eligible for a bank loan to fund your small business comes with some requirements. Without those requirements, it will be difficult to get financial assistance from traditional banks. Here are the eligibilities for a business loan in traditional banks:
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Credit
Score Having a good credit score is one of the required criteria to get a loan to fund your small business. Traditional banks are skeptical of lending to business owners whose credit scores are relatively low. To obtain a small business loan, you should have a minimum of a 600-700 credit score. This makes it easy for banks to consider your loan request.
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Current Debt Amount
Ensure you have a low amount of debt before approaching traditional banks for a business loan. If possible, clear up your debt before reaching out to a traditional bank for a loan.
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Collateral
To get loan approval for your small business, traditional banks may demand the provision of collateral. Collateral is valuable belongings (assets) of the business owner such as car, land, equipment, etc. If you have valuable assets with a market equivalent of the amount you’re seeking you will get a loan.
Traditional banks may be reluctant in funding your startup business if your business plan is full of risks. Therefore, you must take your time to assess your business plan properly before approaching banks for a loan.
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Get Small Business Administration Loan
In case you have challenges in getting loans to fund your small business from traditional banks, your next option is to approach the government funding programs for small businesses. The U.S. Small Business Administration Loan is a good example of a government-owned small business funding organization. This type of loan saves you from bothering about some requirements before securing a loan.
Your loan request can’t be declined due to the age of your business and the presentation of collateral is not fully mandatory. Below are the requirements for obtaining Small Business Administration(SBA) guaranteed loan:
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Have a Registered Business
To be eligible for a small business administration loan, your business must be a registered one. You must have obtained a business registration number and secured the license and permits for operation.
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Operation is within the Country
Your business should be operating within the country. Small Business Administration loans are strictly for small businesses operating within the country.
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No other Financing Source
To be granted loans by the Small Business Administration, your small business must be free of other financing sources. Small Business Administration must be the only body responsible for the funding of your business.
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Self Funding
As the business owner, the Small Business Administration must be able to identify your involvement in funding your business. If you have never made attempts to fund your business with your money, SBA may be reluctant to assist your business.
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Go Crowdfunding
If you’re not comfortable with getting loans, you can as well get money to fund your startup business through crowdfunding online. All you need to do is to visit your desired crowdfunding platform for the donation. There are two major crowdfunding platforms you can approach:
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Reward-Based Crowdfunding
Reward-based crowdfunding is achieved by promising the prospective donors something in return for their money. What the donors stand to get by donating to fund your business may be some of your products when you start operation. Examples of this type of crowdfunding platform are Indiegogo and Kickstarter.
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Donation-Based Crowdfunding
Donation crowdfunding is a way of getting money to fund your business from donors who expect nothing in return. All you need to do is to be specific on what you need the money for and share the link to your donation page online. GoFundMe is an example of this type of donation.
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Takeaway
Following the guide in this article, you should be able to fund your small business and get your business running as soon as possible. Your focus after raising your business capital should be on how to grow your small business to beat the competition in the marketplace with other brands.