It can be a challenge to finance your business. Although the economy has recovered since the financial crisis, getting financed remains daunting. How do you get funds for a start-up? How do you find capital during a tough spell? How do you scale up your business?
The simple truth is that it’s still not easy to get funding.
The best way to do it is to follow tried-and-trusted fundraising methods. But before you look for funding, be clear on why you need the money. If you are starting a business, do you plan to have employees? If you do, do you have enough money to cover the hidden costs of hiring new people? Health insurance, according to the AICPA, is much more complicated than in previous years:
How to Get Funding
Here, then, are 7 ways to get funding.
Starting a business or funding an idea in your business has its risks. So, you can break funding into lower and higher risk categories. If your business fails, you will experience less hardship with the lower risk ways. They separate your personal life from your business life. There are many reasons for small business failure even if it is a good idea and you have the right people on board.
Lower Risk Ways
You can raise funds using crowdfunding. One popular platform is a website called Kickstarter.com. It’s estimated that more than 100,000 people have helped entrepreneurs fund their ideas.
Here are 3 steps to take:
- Set a small goal over a reasonable period of time: perhaps, $2,000 over 60 days. This is not big funding, but just enough money to launch a lean enterprise. This is also not long-term funding. You can’t keep recycling the marketing campaign. It’s designed for single ideas launched one time. It is a way to get the funds you need at a low cost.
- Put an effective marketing campaign together. It should convince people that you have an idea worth investing in. This campaign might include videos, graphics, and descriptions. You may be able to do a lot of this yourself. Still, you may also need to hire an expert to help you make your proposal look great.
- Ask family, friends, and strangers to pledge money for your business idea. Supporters are not investors. They don’t get anything that will give them the chance to earn more than they put in. In fact, their contributions don’t even count as donations for tax purposes.
You have to offer some kind of incentive. If you’re raising money for a book, you can offer the published book as a thank you gift. If you’re making a play, then offer free tickets to opening night.
- Pledge Future Income
You can attract money from family and friends by offering a percentage of profits. This is not a share like in the financial markets. It’s more of a personal investment contract.
- Angel Investors
This is often done in the technological field. You have to convince investors of your vision, so it can be tricky. Superfish, for example, relied on investors to develop image search technology. When Adi Pinhas pitched the idea to investors, the technology did not exist. He also could not point to comparable examples.
- Bank Loans.
Although lending may be stricter than before, banks are still lending to businesses. Many of the big banks still earmark funds for small business owners.
- SBA Loan
SBA Loans need you to meet unusual criteria. You may have to prove that a bank turned down your idea. You may also have to show how your industry would define your idea as a small business.
Higher Risk Ways
- Credit Cards.
This is a bootstrap method if you don’t have any other way of getting funding. It’s only useful if you have a proven business model. It’s only too easy to slip behind in repaying your credit card and dent your credit score.
While this method is easy to deploy, it’s fraught with risk. You could dig a deep hole if your business idea flounders.
- 401 (k)
Perhaps, you’re frustrated with your corporate job. You’re undervalued and underpaid. Now, you’re ready to start your own business. The money that you’ve been accumulating over the years might be your way to fire your boss.
Since the tax code has changed, you can do this without penalty. But you do have to follow the right steps. You will need expert help. You will have to figure out how set up a C-corporation. You will also have to work out where to roll your retirement assets.
If your business fails, you will also lose the money you needed to retire on.
Start Small, Build Confidence
The best way to launch a business is to do it in a small way and test out the idea in the real world. Then just use a lower risk way to launch it. Once you have a proven idea, it will be easier to fund it. Investors and lenders need numbers to convince them of the feasibility of your idea.