Small businesses have traditionally been the key driver for economic recovery when it comes to hiring, but hiring requires capital, and capital can be hard to come by.
Many small businesses have closed down today as a result of capital constraint to run business activities, meanwhile others have broken the string to forge ahead in establishing and expanding their businesses come-what-may.
The truth is, most small businesses piece together their funding from several different sources, no single source of funding is necessarily easier to come by than another. It depends on your business model, projections, and how well you can sell yourself to potential financial partners. Whether you are a start-up seeking initial seed capital or an operating small business looking for money to grow, you have to be flexible, remain positive, and stay vigilant in your efforts.
Here are five ways to get started with funding your small business:
Do it yourself.
Most entrepreneurs and small business owners these days have come to the realization that they will have to self-fund (also known as “boot-strapping”) their projects for a significant amount of time until more formal funding opportunities become realistic. There are many ways to accomplish this from savings accounts and zero interest credit cards to leveraging other personal assets. If you believe in your vision and have an absolute refusal to accept failure as an option, you should feel comfortable investing your own money into the business. In turn, this will make potential investors more comfortable, knowing you have skin in the game. Just keep your eyes on profitability!
2. Friends, family, and fools.
Funding from friends and family is a very popular and effective way to round up some initial capital for a business. Those closest to you are more likely than anyone to believe not only in your vision, but your ability to make that vision a reality. One downside of course is that you are potentially risking personal relationships should the business fail and your agreement not be structured properly. To avoid friends and family feeling like “fools”, I recommend structuring this type of funding as a high interest loan for one year. Borrow just enough to launch the business into operations, build your website, or develop some additional pitch material if you want to go after big money. And as much as you will want to avoid racking up legal fees, it is imperative that all parties get sound legal advice. Not doing so can potentially cost you much more down the road.
3. Small business loans.
I know what you’re thinking. Banks are more stringent than ever about giving out loans and if you don’t have any credit, how can you possibly consider this route? There are actually some organisations that give money in form of loan or grant. You can get some of them here. Startups seeking money from banks need a good business plan, profitable projections and some of their own money in the game. Another reason to pursue debt financing is that you aren’t giving away a piece of your business.
4. Angel investors.
This part has to do with timing and leveraging the right contacts. In my experience the “friends and family” route has actually opened the doors to angel investment rounds. A large amount of trust can be built by giving your early stage investor his or her money back plus interest. But just because someone lent you money to launch your business, doesn’t make them the right financial partner for the long run. When raising money from angels or VC’s you have to keep in mind that they will own a piece of the business and you then have a fiduciary responsibility to act in the best interests of the business and its shareholders. Attracting angel investors is a tricky business, and no matter how exciting and positive the initial conversations may be, the devil is always in the details. Know your business plan, be transparent, back up your valuation with real projections, and build a relationship based on trust.
Regardless of which path you take, chances are that you may do all of these at some point as your business grows. At the end of the day, you have a business to run and none of these matters unless it has your full attention. So find a viable funding solution that also allows you to maintain operations and focus on profitability.