Starting a business is difficult when it comes to finding the money to launch. Not every business owner has savings or credit for a business loan. There are many options for small business owners to get their business off the ground and they don’t always involve getting a business loan. You discover 5 ways to fund your business start-up from bootstrapping to crowdfunding find out which is right for you. So let’s get started.
Bootstrapping
Bootstrapping a business comes the phrase “pulling up by one’s bootstraps”. Essentially, this means you are going to fund your business yourself. This may mean you have a full-time job and your new business becomes a “side hustle” that you grow.How it works
For many business owners with simple ideas or who don’t want or can’t go to a bank to fund their business, this is their option. If you are starting a consulting business or even a small eCommerce business this may be the easiest way, to begin with, the least amount of initial investment.So how can you do this if you work? Well, it going to take some dedication. You will need to set aside time at night or on weekends to develop and market your business. You may want to create a funnel to automate your business marketing and operations using some of the apps I mention in this video for a minimal amount of cost to start growing.
Friends and Family
Many clients use friends or family to help their businesses get off their ground. You may want to consider a friend or acquaintance to invest in your business idea for a share of the profits. You will need to create a solid business plan to approach anyone looking to invest, so contact your local SBDC like ours to help you plan your business costs and potential.Family Partners
We typically get clients who are looking to bring in spouses, siblings, or children to start a business with. You can certainly do that but it does come with some challenges besides money. Check out our video on family-owned businesses to see what those are. Starting with family can save you on investment needed or the family member can “buy into” the business and become a partner.Draw up Agreements
However you decide to partner with a family or friend, you definitely want to consider drawing up a partnership or operating agreement, depending on how you set up the business. The agreements lay out who the partners are, what the financial responsibilities are, what share of the business each will receive, and some rules on who makes decisions in the business and how a partner gets out of the business when that time comes.Business Loans
Microloans
If you are just starting out on your own and don’t have a partner or investor, then you will have to consider a business loan. The most basic loan that can get your business started is a microloan. A microloan is a business loan for $50,000 or less and can be had through a Community Development Financial Institution (CDFI). If you want to know more about rates and how to get a microloan to start your business, check our video here.SBA 7a Loan
SBA loan is the next loan for consideration. This is primarily going to be a 7a loan. 7a loans are advantageous because the amount you can get is greater than $50,000 to $5 million, but requires a personal guarantee from the applicant. This general-purpose loan covers most expenses to start up your business but does not cover real estate purchases which we will cover next.SBA 504 Loan
The final type of loan you should consider for your business is a commercial real estate loan from the SBA also known as a 504 loan. The 504 loan ranges from $125,000 to $20 million and requires a personal guarantee. The 504 can be used to purchase land, building construction, building improvements, and larger equipment purchases.HELOC (Home Equity Line of Credit)
There is a non-traditional way to fund your startup that is gaining steam and works if you own a home. A Home Equity Line of Credit (HELOC) is a line of credit that taps into the equity value of your greatest asset: your home. HELOCs are revolving credit lines, so you will only take out what you need and can be used in conjunction with other funding sources to start up a business. HELOCs can take a while to get approved and you definitely want to make sure your business idea has a solid footing before you risk your home to get that business started. Sign up here to speak to a consultant and plan your business for success.Grants
Many clients looking to start-up often pursue “free” money like grants to start their business. While no money is ever truly free, grants are a much larger subject that we can’t go over in this video so, I encourage you to check out our article “The Truth about grants”. Suffice to say grants are geared more towards nonprofits to serve the public good but can be given to for-profit companies that meet the grant requirements and are not really available for starting up a business.SBIR
With that said there are ways certain small businesses can receive grants for specific uses. The first kind of grant you can use is a Small Business Innovative Research (SBIR) grant. This is for small businesses to conduct innovative research and development and develop a viable product that you want to bring to the marketplace. These grants will come from government agencies like DARPA or the US Army to fund research and you can find those grant requests here. If that sounds like your business contact here at the SBDC to get more information from a business consultant.STTR (Small Business Technology Tranfer)
The other type of “research” grant is the Small Business Technology Transfer (STTR) grant. This grant, like the SBIR, is also for research and development funds but for new technologies. "The goal is to facilitate the transfer of technology developed by a research institution through the entrepreneurship of a small business concern." SBIR and STTR grants are given by specific agencies for specific areas of research. Both grants require proposals and multiple phases to bring a specific technology to market. If your business falls into these categories, you can contact us here at the SBDC to see what opportunities are available for grant funding.Crowdfunding
The type of funding that has been the newest and most innovative for new products is crowdfunding. In a nutshell, crowdfunding is taking small amounts of funding from the “crowd” of backers to bring a product to market. There are 3 major types of crowdfunding you can learn about in our crowdfunding 101 video here. We will cover only 2 right now.Equity Crowdfunding
The first type of crowdfunding for your business is equity crowdfunding. This means instead of one or a few investors, you can get many investors for your business for a piece of the business or some kind of monetary return. There are terms you need to understand based on the platform you use and rules from the SEC on how the process works. In a nutshell, there are regulations on funding through "approved funding portals" and limitations on who can invest based on their individual status.Rewards Crowdfunding
The other kind of crowdfunding is rewards-based crowdfunding like ones on Kickstarter or indie-gogo. Rewards-based crowdfunding asks for specific tiers of money in exchange for a reward to the backers of the project is funded. Many businesses use this funding to bring a product to market or gauge its marketability with their audience. You can check out some examples of some crowdfunding campaigns for a tripod and a teleprompter.Conclusion
However you decide to start your business, you now have 5 options for funding to get your business off the ground. Depending on your business model you may be able to bootstrap your business or may need to get a business loan.You will want to create a business plan to determine your start-up costs and funding requirements. You can always contact us here at the University of La Verne SBDC to speak with a consultant for free to plan your business and get options to fund your next venture.
Let us know how you plan to fund your business. Has this article given more options than you realized? Let us know in the comments below.
Funded in part through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, conclusions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.
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