Coming up with a fruitful business idea can be both exciting and difficult. The next step in the process – finding funding for your new startup – can present an even bigger challenge. Traditional small business loans are typically only available for businesses that have been in operation for a few years and are able to meet a minimum revenue requirement.
So, how can you get the capital necessary to fund your startup? There are actually plenty of other sources you can pull from to get your business started, though you may have to get a bit crafty. I share a variety of creative and effective ways to get startup funding in the post below.
8 Ways to Fund Your Startup Business
1. Venture Capital
Venture capital firms offer funding at the early stages of your business. You don’t have to pay the funds back, but you will need to give the firm a share of the equity. While that might sound like a drawback, it can also be a positive. Since your venture capital firm has financially invested in your success, they may also provide you with other resources to help you succeed.
Still, since the firm owns part of the business, it will also get some say in decision-making, which can be a downside. Venture capital firms aren’t super common, so there’s some healthy competition to get their attention.
You can connect with venture capital firms through a startup accelerator or business incubator. Be sure you have a compelling business plan, a strong edge over the competition, and an effective leadership team to get the best chance of getting noticed.
2. Angel Investors
Like venture capitalists, angel investors provide funding in exchange for equity in your business. However, they tend to be wealthy individuals instead of companies. Many angel investors are also entrepreneurs themselves, so they’re more likely to be genuinely interested in your business growth rather than money alone, though profit is still a motivating factor.
Angel investing is typically easier to secure, since you only need to convince one person that your business plan is viable, not a board of advisors. However, it’s also worth noting that angel investors tend to offer smaller lump sums of funding than venture capital firms - usually up to $100,000.
Microloans typically provide smaller amounts of $50,000 or less. While a traditional business loan requires years in business, a microloan does not. Many microloan lenders will consider your location, industry, business plan, and the success of your business management team to make a loan decision. This can make it easier to get approved.
You can get a microloan backed by the U.S. Small Business Administration (SBA). These loans are available to all kinds of businesses, so they’re fairly accessible. You can also get microloans from nonprofit microlenders, which often specialize in providing loans to startup businesses. Since nonprofits tend to be mission-driven, they have less strict requirements for loans, unlike traditional lenders.
4. Local Bank Loans
If you have a longstanding relationship with your local bank and its management team, they may offer you a business loan despite your startup status. It’s important to understand that most traditional banks and even online lenders usually require that you have a certain time in business and revenue to qualify for a loan.
However, your local bank may consider your long history with them (especially if you have any business accounts) as evidence of your ability to repay the loan. They may also cut you a deal, allowing you to put up some sort of collateral in exchange for the loan. If you’re unable to pay off the loan, the bank would seize the agreed-upon assets as repayment.
5. Business Credit Cards
Just like a personal credit card, a business credit card provides you with short-term funding that you need to pay back. If you don’t pay off the card each month, you’ll face high interest rates.
While this could put you in debt, credit cards can give you the funding you need to get up and running. Once you’ve been in business for a few months and demonstrated your profitability, you may be able to seek more long-term funding and use that to pay off the credit card.
Opening a business credit card is simple. You’ll just need to provide your business structure and have a credit score of 690 or higher. Be sure to shop around for the best deal, as some business credit cards offer 0% APR introductory periods or points systems that can save you money.
6. Small Business Grants
Grants provide you with a lump sum of cash that you don’t have to pay back. Private organizations provide grants, as does the U.S. SBA. Some organizations provide for certain groups of people, like veterans, minorities, and women. There are also grants for specific purposes, like research or rural business development.
Some grants carry stipulations or conditions that you must abide by, so be sure to read the fine print before accepting them. There’s also a fair amount of competition for grants, so you’ll need to have a compelling business idea to stand out.
7. Equipment and Inventory Loans
You can get a loan specifically for equipment or inventory. These loans tend to be easier to get, even as a startup, since the lender secures the loan with collateral. If you fail to repay the loan, the lender has the right to take the equipment or inventory as repayment.
To qualify, you typically need a credit score in the 600s or higher. It’s important to note that some lenders do have stricter qualifications. Some may have revenue requirements or a minimum of six months in business. However, some online lenders are more lenient, so be sure to shop around.
8. Personal Loans and Financing
It’s usually easier to get a personal loan than a business loan since lenders only review your personal credit history. You can use personal loans for anything, including starting a business. Personal loans are usually smaller than business loans - up to $100,000. They also tend to carry higher interest rates, so get quotes from multiple lenders to find the best option.
You might use a personal loan to get started, then secure a business loan after you meet lender requirements later on. You can then use that business loan to pay off the personal loan and use the excess funds as needed.
It’s also worth mentioning that you could use a home equity loan or HELOC (home equity line of credit) to fund your business. These tend to be low-cost loans since you’re using the equity you already own in your home as collateral. This does put your home at risk if you can’t pay off the loan or HELOC but could be a good short-term option while you get up and running.
The Best Way for Your Startup to Accept Payments
Choosing a payment system is one of the most important tasks you’ll complete when creating your business. With Pay.com, getting started is easy. You can get set up with our simple no-code solutions, or opt to integrate our API if you have more technical coding experience.
Whether you’re a developer or not, you can easily create a checkout page, adding colors, logos, and more in just a few clicks. Even if you don’t have a website yet, you can send your customers payment requests via text or email by using Pay Links.
With Pay.com, you can accept a wide range of payment methods, including credit and debit cards, digital wallets, bank transfers, and more. Adding them to your checkout is easy – just click and go.
The Bottom Line
Creating a startup is no easy feat. Coming up with a business idea, figuring out your competitive advantage, finding a strong management team, and doing market research takes hard work and dedication. Finding funding to get started presents its own challenges. You’ll likely need to try multiple methods and accept several smaller lump sums in order to get enough funding.
Still, creating your own business is so worthwhile. Whether you get an angel investor, use a personal loan, or get a grant, you’ll be glad you put in the work as you see your business idea come to life.
One of the essential steps in creating a successful business? Making payments easy and convenient for your customers. With Pay.com, you can get set up quickly, even if you don’t have any coding experience, and accept a variety of payment methods.