6 Ways to Get Money to Get Your Business Off the Ground
Television shows like Shark Tank and The Profit have glamorized the idea of the well-funded startup in recent years. Although some small businesses receive VC and angel funding, the vast majority do not. According to research from crowdsourcing website Fundable.com, fewer than 1% of small businesses receive startup funds from angel investors, and only half that many get venture capital funds. The other 98.5% depend on other funding sources to grow their companies. If you've always wanted to start a small business (or strike out on your own as an independent contractor), here are six great sources to turn to for help getting your company off the ground.
1. Friends and Family
According to Entrepreneur, money from friends and family is the most common funding source for small businesses. That's because your friends and family know you and are likely willing to help support your dreams. Raising money from family can be tricky if expectations aren't clearly spelled out, so make sure you get all the details in writing and know exactly if you're getting a gift, a loan, or an equity investment.
Another option is to look for a funding co-founder. Just as there are several “idea people" want to start small businesses, there are “money people" who've always wanted to experience the thrill of entrepreneurship but haven't come up with the right idea. Consider teaming up with a founding partner to launch your enterprise.
3. Credit Cards, Loans, and Charge Cards
There are several credit options for launching your small business. The SBA guarantees loans for thousands of small-business owners every year, making it possible for people with less-than-perfect credit to secure access to working capital. Personal and business credit cards can also help bridge the gap from Day One to profitability. Charge cards, which look and operate like credit cards but typically offer higher credit limits and terms requiring quicker repayment, are a good choice for higher-cost businesses that will reach profitability quickly. For example, if you need to pay for expensive equipment or materials up front to fulfill a contracted order, a charge card can be a good choice.
Federal, state, and local grants are available to entrepreneurs in several categories. If your work is of a technical or research-based nature, or if it has the potential to bring jobs to your area, you may qualify for any one of thousands of grants that are awarded each year. Visit grants.gov to start your search. If you're a woman, a minority, or a member of a historically underserved community, you may qualify for special funding consideration.
5. Crowdfunding Platforms
Do you have a great idea for a product, but need money to jump-start manufacturing? Consider a crowdfunding site. Kickstarter, Indiegogo, and other crowdfunding sites have helped countless entrepreneurs get their start. If you would rather sell equity than products, the business-crowdsourcing platform Fundable might be right for you. Note that unless you've got an online marketing budget or a strong publicity plan, crowdfunding is likely to be a grind. Your chances of “going viral" on a crowdfunding platform are even smaller than your chances of finding an angel investor or VC, because instead of one believer, you've got to attract and secure many.
6. Sales, Contracts, and Pre-orders
Even if you're not a product-based business, you can use sales to fuel your growth… or even pre-sales to help you start up. Many independent contractors wait until they have contracts in place before quitting full-time jobs. Similarly, service-based businesses can secure retainers or up-front guarantees before beginning their work. If you've built a reputation in your field, don't be afraid to ask would-be customers to sign a contract (or even pay you an advance!) to kick off your new career. Large customers (especially corporate ones) are often agreeable to helping finance the growth of an up-and-coming partner.
Don't let a lack of capital stop you from following your dreams! Startup failure rates for venture-backed companies are just as high as for non-venture-backed companies, which means money isn't always the secret to success. Follow your dreams...you've got this!