Keep reading to learn more about the different avenues of business funding, from investors to grants, and each of their pros and cons.<\/p>\n\n\n\n
Key takeaways<\/h2>\n\n\n\n
<\/p>\n\n\n\n
- \n
- There are many ways to get funding for a business: self-funding, crowdsourcing, investors, loans, <\/strong>and grants<\/strong>.<\/li>\n\n\n\n
- Each kind of funding has pros and cons, some of which can have long-term repercussions.<\/li>\n\n\n\n
- Generally, funding sources that provide higher monetary amounts have more stringent requirements for recipients.<\/li>\n<\/ul>\n\n\n\n
Types of business funding<\/h2>\n\n\n\n
If you\u2019re wondering how to get business funding, the answer is \u201cthere are a variety of ways.\u201d<\/strong> Some funding sources are more well-known, while others are more accessible, especially if you\u2019re a brand-new entrepreneur or don\u2019t have a high credit score. As you explore different funding sources, take note of their qualifications. Certain funding sources, like investors and loans, have rigid requirements like specific credit scores and data-supported revenue projections. Others have \u201csofter\u201d requirements, like the ability to write a compelling pitch or a willingness to serve a specific community.<\/p>\n\n\n
\n![\"Closeup](\"https:\/\/res.cloudinary.com\/vistaprint\/images\/w_600,h_400,c_scale\/f_auto,q_auto\/v1722463060\/ideas-and-advice-prod\/blogadmin\/business-team-partner-working\/business-team-partner-working.png?_i=AA\")
<\/figure>\n<\/div>\n\n\nSource: Image via Depositphotos<\/a><\/em><\/p>\n\n\n\n
Self-funding your business<\/h3>\n\n\n\n
Obviously, self-funding a new business is the easiest choice, but it isn\u2019t plausible for most people.<\/p>\n\n\n\n
It\u2019s best for entrepreneurs who have a lot of capital, people who have a significant amount of money in their savings or have recently come into a lot of money, such as through inheritance or selling a home.<\/p>\n\n\n\n
But that doesn\u2019t mean it\u2019s only<\/em> for entrepreneurs with capital. There are a few ways you can fundraise for your business, like taking on a side hustle or offering your product or service at a small scale. For example, if you plan to launch an eyelash studio and need to raise funds for a security deposit and a new space, you can offer services in clients\u2019 homes to build up your bank.<\/p>\n\n\n
\n![\"Piggy](\"https:\/\/res.cloudinary.com\/vistaprint\/images\/w_600,h_400,c_scale\/f_auto,q_auto\/v1722463047\/ideas-and-advice-prod\/blogadmin\/piggy-bank-on-money-concept\/piggy-bank-on-money-concept.png?_i=AA\")
<\/figure>\n<\/div>\n\n\nSource: Image via Depositphotos<\/a><\/em><\/p>\n\n\n\n
Keep in mind that if you self-fund your business, you\u2019re the one taking on all the risk. <\/strong>If the business fails and the money runs out, it\u2019s gone. Your money is gone. The flip side of this is that because you\u2019re the one providing 100% of the money, you retain 100% control over it\u2014there are no investors to pay back and no shareholders to keep happy.<\/p>\n\n\n\n
As you consider self-funding, also known as bootstrapping<\/strong>, note all the different funding sources you can use. If you have a high credit limit, you can use credit cards to your advantage\u2014just be sure to do so thoughtfully, as credit card bills you rack up will need to be repaid with interest. Alternatively, if you have investments, you can liquidate these and use the funds as startup capital. You can also potentially borrow against assets, like taking out a home equity line of credit (HELOC) if you own a home.<\/p>\n\n\n\n
<\/p>\n\n\n\n
Pros<\/h4>\n\n\n\n
- \n
- You have full control of the funds.<\/li>\n\n\n\n
- There is nobody to pay back.<\/li>\n<\/ul>\n\n\n\n
Cons<\/h4>\n\n\n\n
- \n
- There is no \u201csafety net.\u201d<\/li>\n\n\n\n
- You\u2019re limited to only the funds you can personally pull together.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
Crowdsourcing funding<\/h3>\n\n\n\n
Crowdsourcing has a few similarities to self-funding. Namely, with crowdsourcing, you\u2019re the one who raises the money, and ultimately, you have full control over it once it\u2019s time to make business purchases. The difference between self-funding and crowdsourcing is that with self-funding, the money typically comes directly from your own personal accounts, like your savings or investment accounts. With crowdsourcing, other people give you money to get started\u2014often in exchange for a freebie, early access to your product or some other kind of bonus.<\/p>\n\n\n
\n![\"Graphic](\"https:\/\/res.cloudinary.com\/vistaprint\/images\/w_600,h_600,c_fill,g_auto\/f_auto,q_auto\/v1722463052\/ideas-and-advice-prod\/blogadmin\/human-faces-arrow-icons\/human-faces-arrow-icons.png?_i=AA\")
<\/figure>\n<\/div>\n\n\nSource: via Depositphotos<\/a><\/em><\/p>\n\n\n\n
Platforms like Kickstarter and Kickfurther make it easy to crowdsource funding for a new business. Navigating these platforms can feel similar to navigating social media platforms, so you\u2019ll need to have eye-catching images and copy ready if you want your business to stand out among the sea of others seeking funding.<\/p>\n\n\n\n
Part of catching and keeping potential pledgees\u2019 attention is offering them something in exchange for the funds, like early access to your service, a giveaway item or another promotional gift. This is where careful market research and a genuine understanding of your customer persona is key\u2014you need to offer people something they\u2019ll want so badly that they give your brand-new business their money.<\/p>\n\n\n\n
<\/p>\n\n\n\n
Pros<\/h4>\n\n\n\n
- \n
- Crowdsourcing is inexpensive.<\/li>\n\n\n\n
- Crowdsourcing can provide exposure and build brand recognition.<\/li>\n\n\n\n
- No need to pay back investors.<\/li>\n<\/ul>\n\n\n\n
Cons<\/h4>\n\n\n\n
- \n
- You\u2019re dependent on pledges\u2014if nobody pledges, you get no money.<\/li>\n\n\n\n
- Funding amounts tend to be smaller than those raised through loans and investors.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
Working with investors<\/h3>\n\n\n\n
Investors are people who provide funds in exchange for a stake in your business. They can be individuals, groups or companies. There are different kinds of investors, and the type of investor that\u2019s best for you depends on a few factors, including:<\/p>\n\n\n\n
- \n
- The kind of business you\u2019re launching<\/li>\n\n\n\n
- How much money you need<\/li>\n\n\n\n
- What you\u2019re willing to offer in return for investments<\/li>\n\n\n\n
- Projected revenue levels<\/li>\n<\/ul>\n\n\n\n
An angel investor<\/strong> is an individual (sometimes a group) who provides funding for a business at its earliest stages. Generally, angel investors are experienced entrepreneurs, which means if you\u2019re seeking funds this way, you\u2019ll need to really prove your business plan\u2019s value to secure funding. This can be done through case studies, presentations and any data you\u2019ve collected about your product, market and business\u2019 viability. Angel investors may be friends, family or other members of your community. They may also be strangers you find through internet searches and networking.<\/p>\n\n\n
\n![\"Photo](\"https:\/\/res.cloudinary.com\/vistaprint\/images\/w_600,h_400,c_scale\/f_auto,q_auto\/v1722463042\/ideas-and-advice-prod\/blogadmin\/team-investment-working\/team-investment-working.png?_i=AA\")
<\/figure>\n<\/div>\n\n\nSource: via Depositphotos<\/a><\/em><\/p>\n\n\n\n
Venture capital firms<\/strong> are companies whose business model is investing in emerging and established businesses. Typically, they invest larger sums than angel investors and require higher returns on their investments. In many cases, a venture capital firm may specialize in investing in a specific type of business, like tech or healthcare startups. You can connect with venture capital firms<\/a> through venture capital associations and private introductions.<\/p>\n\n\n\n
With both types of investor, you need to clearly demonstrate why investing in your business is in their best interest. A venture capital firm may have an established application process for businesses seeking funding, while an angel investor may take a less structured approach\u2014but in any case, you must provide clear data that shows how your business will grow, develop and earn money that you\u2019ll pay back to your investors. After securing funding, you may also be required to provide regular profit\/loss and growth reports. Your reporting schedule, the amount of money invested, the investors\u2019 returns and the schedule on which they\u2019ll receive them are all written into your investment contract, which may be drafted by a business attorney and properly notarized.<\/p>\n\n\n\n
Sometimes, investors offer money in exchange for equity in the company. Essentially, this means they own part of the business, and in the event the business closes, they are entitled to a portion of its liquidated assets.<\/p>\n\n\n\n
<\/p>\n\n\n\n
Pros<\/h4>\n\n\n\n
- \n
- You and the investors are protected by a contract.<\/li>\n\n\n\n
- In some cases, investors can provide valuable business guidance and advice.<\/li>\n<\/ul>\n\n\n\n
Cons<\/h4>\n\n\n\n
- \n
- You are contractually required to pay investors back regardless of the business\u2019 performance.<\/li>\n\n\n\n
- Investment is at the investors\u2019 discretion.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
Business loans<\/h3>\n\n\n\n
Business loans are a popular source of funding for new businesses. WIth a business loan, much like a mortgage or student loan, you borrow money and are then contractually required to pay it back, with interest, on a specific schedule.<\/p>\n\n\n\n
Business loans can come from a variety of sources. These include:<\/p>\n\n\n\n
- \n
- Individual lenders<\/li>\n\n\n\n
- Banks<\/li>\n\n\n\n
- Governmental entities<\/li>\n<\/ul>\n\n\n\n
A loan\u2019s terms are determined by a variety of factors, such as the borrower\u2019s credit score and the type of lender they\u2019re working with. For example, borrowing money from an individual, rather than a bank, means borrowing at a higher interest rate. These terms are written into the loan\u2019s contract, and beyond the interest rate and payback schedule, they also include terms regarding early repayment and consequences for default.<\/p>\n\n\n\n
<\/p>\n\n\n
\n\n\n\nTip<\/h4>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n
\n\u00a0<\/div>\n\nIf you\u2019re facing difficulty qualifying for a loan on your own, you may have a business partner, family member or friend co-sign a loan.<\/p>\n<\/div>\n<\/div>\n\n\n
<\/p>\n\n\n\n
Taking out a business loan can be quite similar to working with investors. However, there is one key difference: with a business loan, the lender has no say in your business\u2019 operation. Business loans also are more straightforward than investor agreements; you borrow the money and pay it back as required. The lender gets no equity in your company and once the loan is paid off, the relationship is over.<\/p>\n\n\n\n
<\/p>\n\n\n\n
Pros<\/h4>\n\n\n\n
- \n
- Business loan debt is often dischargeable through bankruptcy.<\/li>\n\n\n\n
- The lender has no stake in your business.<\/li>\n<\/ul>\n\n\n\n
Cons<\/h4>\n\n\n\n
- \n
- You must have good credit and may need considerable existing assets to qualify for a business loan.<\/li>\n\n\n\n
- If you default on a business loan, your credit score is negatively affected.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
Private and governmental grants<\/h3>\n\n\n\n
A grant is like a loan, but with one key difference: you are not<\/strong> required to pay it back.<\/p>\n\n\n\n
Grants are often used to stimulate business development. This is why they have stipulations about the kinds of businesses and business owners who qualify for them. Sometimes, the stipulation is that the business operates in a specific city or region, serving populations who previously couldn\u2019t access the product or service the business offers. Grants also have stipulations about how the money is used and require recipients to provide documentation that the money is being used for approved purposes, such as hiring local residents or buying energy-efficient equipment.<\/p>\n\n\n\n
Grants can come from private or governmental entities. The easiest way to find them is through online databases, like those linked in this Intuit blog post<\/a>. Generally, the process for securing a governmental grant is the same as the process for a private one:<\/p>\n\n\n\n
- \n
- Apply for the grant. This often involves providing detailed information about your business and plans regarding the funds.<\/li>\n\n\n\n
- Undergo an evaluation by the granting agency.<\/li>\n\n\n\n
- If approved, the grant money is disbursed on a predetermined schedule.<\/li>\n<\/ul>\n\n\n\n
Grant recipients are required to document their use of the funds and share this information with the grant issuer. Failure to do so can cause the grant to be canceled.<\/p>\n\n\n\n
<\/p>\n\n\n\n
Pros<\/h4>\n\n\n\n
- \n
- Money does not need to be paid back.<\/li>\n\n\n\n
- There are lots of grant opportunities available.<\/li>\n<\/ul>\n\n\n\n
Cons<\/h4>\n\n\n\n
- \n
- Recipients must maintain and submit detailed records of funds usage.<\/li>\n\n\n\n
- Finding grants can be a long, tedious process.<\/li>\n\n\n\n
- Grant applications can be time-consuming.<\/li>\n<\/ul>\n\n\n\n
<\/p>\n\n\n\n
Now you\u2019re ready to request funding and write a business plan<\/h2>\n\n\n\n
Now that you know how to get funding for a business, you should pick 2-3 funding methods that work best for you. Once you\u2019ve determined which kind of funding you\u2019ll seek, the next step is to write a solid business plan<\/a>. This is the baseline you\u2019ll need when seeking any type of funding. Other documents to prepare include an engaging pitch deck and a well-rehearsed pitch you can present to investors.<\/p>\n\n\n\n
You also need to be transparent with potential lenders and yourself<\/em> about figures like your current debt level, business experience, projected income and current market. If you can\u2019t provide detailed, accurate figures for these right now, do the necessary research and reach solid figures before you seek funding. You will be asked about these, especially if you\u2019re seeking a bank loan, grant or investor involvement.<\/p>\n\n\n\n
Funding is the first step in starting a business<\/h2>\n\n\n\n
As a small business owner, getting enough funding can be the difference between launching now and having to put your dreams on hold for months or even years longer. Invest in your future by exploring all your funding options now to find the right opportunity for your business. You may find that the best way to fund and launch is through multiple streams, like partially self-funding and partially crowdsourcing. That\u2019s totally okay! The important part is that you get enough money to launch successfully and start generating revenue.<\/p>\n\n\n\n