The 9 Best Ways to Raise Money for Your Business
Every year, more and more businesses are born into this world. Each one of them requires funding to grow and prosper. Yet, raising money for an evolving business is one of the biggest challenges founders are faced with.
As a small business owner, you might’ve considered pitching to investors because it’s the most commonly known method for obtaining funds. Even so, it’s not always the winning choice due to the highly competitive market and somewhat brutal potential investors (cough cough, Shark Tank). That’s why we’ve listed below many more clever methods to help you raise money for your business.
Pro tip: Before you start looking for funds, consider creating a website for your business. A website can function as a virtual business card that will only help you appear more professional and sound when potential investors research your business.
Here are 9 ways to raise money for your business:
Ask a close companion
Take out a loan
Apply for a grant
Offer product pre-sales
Experiment with angel investors
Pitch to venture capitalists
Research relevant incubators
Before you turn to outsiders for help, check to see how much of your expenses you are able to cover on your own dime. Bootstrapping is the process of using your own resources - such as savings, taking a second mortgage on your home, and your retirement account - rather than any external source to raise capital and fund your venture.
Doing so will help you gain a sense of independence and motivation to make sure you’re doing everything in your power to be successful. Plus, investing your own money shows investors that you’re committed to your business, as you’re willing to take the risk too. And yes, the saying “put your money where your mouth is” definitely applies here.
Some ways to reduce your business’s costs include:
Reduce your expenses. By using your home as an office or working from a shared workspace, you’ll be able to cut back on office-related costs and still have access to all the equipment you need. (Here are some small business accounting tips to help you keep track of your finances.)
Hire the minimal amount of employees. Consider how much of your work you are able to do yourself, because during this time it’s important to minimize or eliminate any extra resources. In times of emergency or for things you simply aren’t able to do yourself, you can hire contractors/freelancers and interns.
Sell your personal assets. Selling a car or putting your home on the market and moving to a smaller house or apartment are both ways to put a lot of extra bucks into your pocket. Think about personal assets you have that are less valuable to you than the success of your business. Then, consider whether it's worthwhile to part from them.
Apply for a credit card. This is one of the easiest ways to raise money for your business, but it’s also quite risky. If you’re using this method for less than 18 months, you can get a credit card with a 0% annual interest rate. However, if you go over that time frame and aren’t able to pay back your expenses, you can run into some seriously high interest rates, and essentially a large pile of debt. So drive this road very carefully.
02. Ask a close companion
Turning to people that know you best and believe in your mission might just be your best option. Your family and friends are the people in life that truly have your back. Unlike banks and other investors, they are most likely not going to charge you high interest rates either, if any at all. You’ll also be able to take your time paying them back, given the optimal circumstances.
Yet, like every other form of investing it comes with its own risks. For example. If your business venture fails and goes bankrupt, you probably won’t be able to pay your friends back in a respectable amount of time. This could in fact harm your relationship with them. So, keep in mind that even though this is one of the easiest ways to raise capital as you start a business, you’ll need to make an educated decision about whether or not you want to mix business with pleasure.
03. Take out a loan
Even with all of the talk about investors funding startups, loans still remain a core option for raising money in the small business world. There are several options to turn to as well:
Bank loan. Reach out to your bank and ask to take out a loan. These are a popular choice as they often have low interest rates, starting around 3% or 5%. If your credit score is in good shape and the bank deems you responsible, they will probably say yes too.
SBA loan. Also known as a small-business loan, this is one of the most widely approved types of loans for new businesses. With high chances of acceptance and loan options offered above $50,000, you might want to consider checking this out. However, just be aware that the interest rates are slightly higher than your bank would charge you, which is typically from 7% and up.
Microloans. These are smaller start up business loans than the previous two options, ranging from $500-$50,000. They last for a shorter length of time and sometimes have medium to low interest rates from around 8-13%, while other times they don’t have interest rates whatsoever. They are most popular in non-profit organizations and among developing nations, but you can certainly find options no matter what type of business you have.
04. Apply for a grant
One reason that makes this option of raising money appealing is that you don’t have to pay anyone back. Let us repeat that: You don’t have to pay anyone back. So forget the interest payments and unresolved debts and start filling out grant applications. Both the government and private institutions offer options, too.
Still, there is a common saying “nothing in life is free.” Grants, for example, are highly competitive. You’re going to have to put in work and prove your worth if you want money from your chosen institute. Likewise, it’s highly recommended to apply for multiple.
To check out the different government options, you can turn to the SBA’s Grants programs or find a specific department based on your industry (for example, looking up grants from the Department of Agriculture if you run an organic farm share business). Private institutions that offer small business grants include FedEx, Walmart, and Wells Fargo among many, many others.
Here’s a way of raising money that puts more of the power in your hands. Crowdfunding is the process of using the audience of the World Wide Web to gradually raise small amounts of funding from a large amount of people.
Unlike other methods, you’ll have to approach this one from more of a marketing standpoint. For example, most crowdfunders create a video about their business idea to engage an audience and explain their product or service more fluently. Then, you’ll want to choose a platform that serves you best, considering the fees, target audience, and other factors that can hinder or help your success. We’ve made that easy for you in this guide to the best crowdfunding sites.
06. Offer product pre-sales
This one is specifically for businesses launching a particular product. The clever way to fund your production and distribution costs is to have future customers pay ahead. This will grant you the funds you need exactly when you need them, as well as ensure you don’t over or under-produce your product. It will also hold you accountable to your most important stakeholders: Your customers.
Here, be very rational with yourself about whether or not this is a plausible decision. You’ll need to make sure you can meet your quota when you promised your customers you will. Create a defined timeline, stick to it, and always be transparent with your customers.
07. Experiment with angel investors
An angel investor is someone who has the capability to provide a large amount of funding to startups and entrepreneurs. The exact prescription for when and how much funding your business can receive from one truly depends on your agreement with this person. Although they are going to be a huge cheerleader for your business, they will most likely ask for something in return. And whether that is an equity stake in your business or something else is up to your set agreement.
To find an angel investor, look to your circle of other entrepreneurs and their investors, take the time to network at local business events, and search popular online networks such as AngelList.
08. Pitch to venture capitalists
On the opposite side of the spectrum from angel investors you’ll find venture capitalists, or ‘VCs’ as the cool techies call them. While angel investors are focused on the individual entrepreneur and nursing them through the beginning stages of running their startups, VCs are more in it for the profit - such as whether that startup will file for an IPO (initial public offering) or earn an ample amount of income fast.
If you want to receive funding from a VC, you should note that proving your ability to perform above and beyond is quite difficult. This is one of the most competitive industries, and VCs have no problem telling you “no.” Nevertheless, it’s important to show up with your ‘elevator pitch’ perfected to a T. In doing so, note that you have a limited amount of time to convince the VC to give you their money. Then, if all works out in the end, the investor will most likely request equity, voting rights, and other restrictions from you in order to have more control over your business’s operations.
There are tons of venture capitalist firms to reach out to, you’ll just need to do some research to find the one best suited for your business.
09. Research relevant incubators
An incubator is so much more than an investor. It’s a commercial workspace for new ventures to grow and hopefully blossom into successful businesses during a limited period of time. You just need to show up with an excellent business idea and a strong dedication to it. The incubator will hold your hand through the beginning stages of your business by offering everything from office space to equipment, mentorship, marketing and administrative support, and funding. This ensures that all you need to focus on is getting your idea to market.
To apply, note that there is a long and strenuous application process. So before investing your time, consider whether or not you’re ready to go through with this. If you’re still up for it, do some research on the many incubators out there. Some serve the general public and cater to a wide range of developmental needs, while others choose to specialize in certain industries in order to help new companies grow together based on common goals.
To find a business incubator in your area, check out the International Business Innovation Association (InBIA), which provides the largest network of worldwide entrepreneurial support. On their website, you'll find a search engine and member directory for you to browse. In addition to this, you can also discover business incubators by reaching out to your local economic development agency and educational institutions in your area to ask if they are able to lead you in the right direction.
By Jennifer Kaplan
Small Business Expert & Writer