Starting a small business can be an enriching experience, but it can also be challenging. One of the biggest hurdles new small-business owners face is finding the capital they need to get their business off the ground. There are many different ways to secure the funding you need — here are 10 of the most popular.
1) Use your savings
The most common way small-business owners finance their businesses is by using their own savings. If you have some money set aside, this can be a great option, as it doesn’t require you to take on any additional debt.
Even if you plan to borrow or sell shares in your company, you may need to invest some of your own cash. Most lenders and investors want to know that you believe in your business enough to invest in it.
However, it’s essential to keep some of your savings in the bank to cover emergencies or periods when you might have to work in your business without pay. If you run too short on family funds, you could damage your credit rating, hurting your ability to borrow for the business.
2) Get a PayPal line of credit
PayPal Credit is a line of credit offered by PayPal that allows customers to make purchases online or in-store using their PayPal account. It functions similarly to a credit card, allowing users to make purchases and pay for them over time with interest and fees, if not paid in full by the due date.
PayPal Credit is available to customers in the US and UK who meet certain eligibility criteria and have a PayPal account in good standing. Apply for PayPal Credit.
3) Use your credit cards wisely
You can finance your business with a credit card if you have good credit. Credit can be a quick and easy way to get funding, but it’s essential to be aware of the potential risks.
Credit cards usually have high-interest rates, so if you carry a balance, you could pay a lot of interest. In addition, using your credit cards to finance your business can put your personal credit at risk if you can’t make your payments.
It’s best to use something other than your card for capital expenses like office furniture or tools. But your card is an excellent option when you need to buy materials or pay subcontractors to complete a job. If you consistently pay your card in full when your client pays you, this can be a great way to finance your business without taking on any debt.
4) Look into small-business loans and government grants
If you don’t have the cash on hand to finance your business, you may be able to get a small-business loan from a bank or other financial institution. Getting a loan can be time-consuming, but it can be a good option if you can’t get funding any other way.
The bank will want to see a business plan showing reasonable projections and demonstrating your ability to repay the loan. They may also take into account your personal credit history and financial picture. The federal Small Business Administration helps entrepreneurs get funding by guaranteeing loans through your local bank — their website offers lots of resources that can help you prepare to request a loan.
Another potential source of funding for your small business is government grants. These are funds that the government provides to companies to help them start or expand.
Grants are less common than some people think. They are usually offered only to businesses that positively impact the community, such as developing new technology or providing jobs in disadvantaged areas.
The downside of government grants is that they can be very competitive, and the application process can be complicated. But if you’re able to get one, it can be a great way to finance your business without having to repay the money.
5) Find an angel investor
If you have a solid business plan and you’re looking for a large amount of money, you may be able to find an angel investor. These wealthy individuals invest in businesses they believe have good profit potential.
The advantage of working with an angel investor is that they can provide a lot of money, which can help you take your business to the next level. The downside is that they likely will want a say in how you run the company, and they may expect to get their money back quickly if the business is successful.
This option is best for entrepreneurs who want to bring a high-profit idea to market. An invention, an app, or a franchisable concept is more likely to appeal to angel investors than a mom-and-pop restaurant or niche store.
If you’re looking for an investor, start by talking to your friends and family — you may be surprised at who is willing to invest in your business. Take a look at the Don and Patrice Dodds Investment Fund for startups.
6) Sell shares in your company
Another way to raise capital for your small business is by selling shares in your company. This means you will give up a portion of ownership in exchange for the money you need to finance your business.
The advantage of this option is that you won’t have to repay the money and won’t have to give up control of your company. However, the downside is that you’ll give up a portion of future profits, and if the business fails, you could lose your investment entirely.
If you’re considering selling shares in your company, it’s essential to consult with a lawyer or accountant to make sure you do it correctly.
Crowdfunding is a relatively new way to finance a small business. With crowdfunding, you raise money by asking a large number of people to each contribute a small amount of money.
Crowdfunding can be a great way to raise money, but it’s important to remember that getting people to donate can be challenging. You’ll need to create a compelling pitch and reach out to your networks to get people to donate.
Crowdfunding works best when you’re introducing an innovative product, and you have an existing relationship with your target market. For example, a well-known travel blogger might use crowdfunding to pull together the funds needed to launch a luggage line.
There are several websites that can help you with crowdfunding, including Kickstarter (kickstarter.com/) and Indiegogo (indiegogo.com/).
8) Use your retirement account
If you have a retirement account, such as an IRA or a 401(k), you can use it to finance your small business. For example, with a 401(k) loan, you can borrow up to $50,000 from your account (or up to $10,000 if you have an IRA).
The advantage of this option is that the interest you pay on the loan will go back into your account. The downside is that you could rack up taxes and penalties if you can’t repay the loan.
Before you take a loan from your retirement account, make sure you understand the rules and regulations — you don’t want to end up owing more money than you can afford to pay back.
9) Use your home equity
If you own your home, you can use your home equity to finance your small business. With a home equity loan, you can borrow against the value of your home.
The advantage of this option is that you can usually get a lower interest rate than you would with a traditional bank loan. The downside is that you could lose your home if you can’t repay the loan.
Before you take out a home equity loan, make sure you understand the risks and talk to a financial advisor to ensure it’s the right move for you.
10) Start as a side hustle
If you’re still deciding whether to give up your day job, you can start your small business as a side hustle while keeping your full-time job.
The advantage of this option is that it will give you a chance to test out your business idea without quitting your day job. The downside is that getting your business off the ground will take longer, and you may have trouble finding the time to work on it.
If you decide to start as a side hustle, manage your time carefully and keep your side hustle from interfering with your full-time job.
Fund your dreams
No matter how you finance your small business, it’s essential to do your research and understand the risks before you take any money. By taking the time to plan ahead, you can increase your chances of success and avoid putting yourself in a difficult financial situation.
With these 10 ideas in your pocket, you should be able to find the funding you need to make your dreams come true.