Are you thinking of starting a new business? If this is the case, then surely you are also thinking about how to fund your business.
Raising enough funding is essential not only for small businesses but for any type of business to start-up, up and to ensure longevity and future success.
But how can a small business get funding?
There are actually plenty of options, like savings, personal loans, credit cards, bank loans, government programs, ecommerce funding, etc., to get small business funding.
But, which option you should choose depends on the business size, industry, the amount you need, time frame, purpose, and so many other factors. And to help you with that, we’ve come up with this detailed guide.
But before discussing the funding options and what to consider when deciding a funding option, let’s find out how to determine how much funding you will need. So let’s get started.
How To Estimate How Much Funding You’ll Need?
To determine exactly how much funding you need to start your small business, the first thing you need to do is estimate startup costs. In fact, it is one of the crucial elements of your financial plan.
Also, it is important to accurately estimate the fund required to start a business, especially for a small business. This is because if your fund runs out, then there are chances that your business may fail in its very early stages.
On the other hand, the estimation of total funds based on correct assumptions will reduce the possibility of future cash shortages. So, let’s find out how to estimate the fund correctly –
- Create a detailed business plan considering the extra resources.
- Make a list of all your business expenses (one-time, ongoing, fixed, operating, and variable expenses).
- Calculate business development costs.
When planning to fund your startup, consider only those items you need to start your business.
Additionally, be sure to research the additional costs your industry may require. In this case, you can seek help from other professionals in your field or websites to determine what you need about your business type.
Once you have all these figures, you will get an estimation of your expenses to fund your startup costs.
How Can A Small Business Get Funding?
Now that you have planned how much funds you will need, it’s time to explore the most common funding sources available.
Since we are talking about small business funding, this means you don’t need much money like larger businesses. The fact is that you can start your small business with a limited budget also.
In this case, bootstrapping your own business is the best option for you. This process is commonly known as self-funding, which lets you utilize your own financial resources to fund your business.
In addition to using your own money, self-funding also includes using the capital of your friends and family, business line of credit, service or product presales, savings/selling assets, and other income to fuel your business fund.
2. Venture Capital From Investors
Investors often fund small businesses in the form of venture capital investment. It is usually provided in exchange for an ownership share or an active role in the business.
To get venture capital funding, you should follow the following steps-
- Look for individual investors or venture capital firms (make sure to do proper research to ensure the investor is reputable).
- If you find an investor, the next step will be to share your business plan.
- Set the terms and conditions mutually.
- If both parties agree on the terms, then you will get the investment.
3. Bank and Credit Unions
One of the most common methods for starting a business is to seek funding from banks through loans and credit unions.
The positive side of taking a loan for business funding through a bank is that it’s an effective way to build your business credit and access a large amount of funds.
But there is a big challenge associated with this process; the process can be very lengthy and difficult. This is mainly because most banks will ask for your detailed business plan and a personal guarantee or collateral from you.
4. Small Business Administration-Guaranteed Loans
If you face trouble getting bank loans or credit unions, you can consider the SBA loan, which is another traditional business loan option.
SBA works with lenders to provide loans to entrepreneurs. Usually, SBA has lower interest rates. One downside of this method is that the approval time can be much longer here.
5. Small Business Grants
There are various government entities, corporations, and non-profit organizations that provide money to start or grow small businesses. So, it will be a great idea to look for grants to support your business.
Here is the list to find the perfect grant for your business-
- Government Grants – Available at the federal, state, and local levels
- General Small Business Grants – Nonprofit and larger corporations offer grants based on the small business’s eligibility and industry.
- Industry-Specific Grants – Provides assistance to businesses that fit a particular niche.
- Diversity Business Grants – Helps minorities and other underrepresented communities.
It is a process of raising funds from a large number of people. People usually provide these donations in exchange for gifts of branded merchandise.
This process is low-risk as here you don’t need to pay the donors; there is also no need to share ownership of your business. But, there is a downside to crowdfunding, and the downside is that it is time-intensive.
Whether you use personal savings, venture capital, crowdfunding, or any other funding option, the most important thing is to determine the best option for your small business.
Your funding goal should be ensuring the financial security and growth of your business in the long run. However, we hope our guide has helped you with the right way to get funds for your small business startup.
So, leverage this guide to get the best funding option and all the best for your new startup journey.