For new businesses, the adage “money doesn’t grow on trees” rings especially true. One in three new business owners start with less than $5,000 for their small business. It’s one thing to have a great business idea, but finding the money to make it a reality is another.
The fact of the matter is that financing is an essential part of getting your business off the ground, and money is a key ingredient in the recipe for startup success. Due to the stringent requirements of traditional business loans, securing startup funding for small businesses can be particularly challenging and may appear out of reach.
That shouldn’t affect your business plans. Finding the funds to support your startup can be challenging at times, but it is not a lost cause at all. You should still investigate additional “money trees” and excellent startup business loans. We have compiled a breakdown of the best beginning funding options to assist you in better navigating them.
Free money grants for starting a business? It may sound too good to be true or like a dream come true. Fortunately, there are a number of government-backed and private grant options for new businesses, and business grants are not a myth.
However, there may be some drawbacks. Grants are a competitive option due to their nature.
There are strict guidelines regarding how funds are used, and the application process can be time-consuming and labor-intensive at times.
You can look into a number of grant funding options online, such as federal grants and programs like the Small Business Innovation Research program or the Small Business Technology Transfer program, among others.
Loans from the Small Business Administration (SBA) The SBA offers loans to startups and small businesses in collaboration with lenders. The SBA guarantees a portion of the loan rather than lending directly, assisting new businesses in obtaining loans with desirable rates and terms that are otherwise extremely uncommon for a new business.
For startup loans of up to $50,000, the SBA microloan program collaborates with nonprofit, community-based lenders.
Benefits other than financial ones One major benefit of SBA microloans is face-to-face interaction in the form of mentoring. In most cases, microloan providers will match you up with other founders of startups who can give you advice on a variety of topics; for instance, business strategy, marketing, and finance, among other things.
It is important to note that mentored startups raise seven times as much money as independent startups.
Here, you can look at every SBA loan option and resource.
Loans for new businesses are a type of financing designed to assist in covering the costs of starting a new business. These funds can typically be used to purchase supplies, machinery, working capital, equipment, real estate, inventory, and more.
Consider the fact that traditional lenders typically require applicants to jump through numerous hoops in order to be eligible for loans. These loans are frequently out of reach for startups in their early stages due to stringent eligibility requirements and restrictive terms.
Business lines of credit are similar to credit cards in that they provide access to revolving capital.
They are frequently used to cover immediate financial requirements, such as the purchase of inventory or the creation of new products. The fact that interest is only charged on the amount spent rather than the entire credit limit is one of the main benefits of a business line of credit. Bank business lines of credit have strict requirements for startups, just like loans.
Equipment financing is typically a more cost-effective option for businesses that are just starting out and looking for money to buy the actual equipment they will need to run their businesses.
This kind of financing doesn’t work for real estate; instead, it works for things like machinery, computers, servers, vehicles, and other similar equipment.
The equipment you buy becomes collateral for the lender once the loan is approved. If the loan defaults due to nonpayment, the lender can take possession of the asset. In most cases, equipment financiers pay the equipment vendor(s) directly for the loan amount, while others cover a portion of the equipment’s cost.
Check out equipment financing companies like eLease for more information if equipment financing sounds like a good option for your business.
Angel investor An angel investor is typically a wealthy individual who invests in startups that require early-stage funding. They put their own money into your company, typically in exchange for a stake in the company. As a result, there is little risk and no loan to repay in the event that the company fails; instead, if your company grows, your angel investor gets a cut of the profits.
Most angel investors are successful business owners with a lot of startup experience. This additional mentoring can be extremely beneficial in shaping a company’s long-term success. However, finding an angel investor is not a simple task unless you are extremely fortunate. It may require multiple lengthy concept pitches and rejections, and even then, it rarely succeeds.
If you want to get money from an angel investor, you should brush up on your knowledge of the process and learn how to perfect your pitch. To get you started, the following are some useful resources:
Venture Capitalists (VCs) A VC is an outside group that raises capital from limited partners and takes shares in the startup in exchange for funding, in contrast to angel investors, who invest their own money. Negotiable ownership percentages typically take into account a company’s valuation.
The financial advantages of a VC are not the only ones. VCs, like angel investors, can offer a wealth of industry connections, business direction, and knowledge. New startups, on the other hand, have very little chance of getting VC funding. Venture capitalists look for businesses that have a unique product and market opportunity that will likely increase in value quickly.
For more information on how venture capitalists make decisions, see How Venture Capitalists Make Decisions.
Crowdfunding is a type of startup funding that doesn’t require a company to meet the requirements that a traditional lender would.
Through a crowdfunding platform, you can offer equity to attract investors,
removing the need for traditional lending requirements like application forms, credit scores, collateral, and the like. Crowdfunding is a method of financing that works best for small-scale startups.
There are a number of crowdfunding platforms to think about if you want to look into it as a way to fund your startup. Fundable, Indiegogo, and Kickstarter are some of the most popular platforms for crowdfunding.
Fast funding for your expanding company As an entrepreneur, you alone know your objectives and timeline.
It might make sense to investigate grant funding, crowdfunding, and investor pitches further if you are willing to give up equity and have the time to do so.
On the other hand, if you want to grow your business even more, you might be better off applying for a term loan or business line of credit. If your application is accepted, you’ll be able to get the money you need quickly.
