The Best Funding Sources to Efficiently Grow Your Business

surviving-freelance-businessGetting your hands on the revenue you need to fund your new business isn’t always simple, but there are a lot more options available to us now than in past decades.

Thanks to social media, technology, and the internet, startups and small businesses are growing at an alarming rate.

If you’re looking for ways to up your cash flow, here are the best funding options to help grow your small business in an efficient and smart way.

1. Bootstrapping

A good first step is to determine if you even need outside funding sources, or if you can leverage a bit of bootstrapping strategy. Many successful entrepreneurs and startups have used bootstrapping as a way to grow their businesses without giving up control to other investors.

Essentially, bootstrapping is the ability to use existing resources to expand your current situation. And while it may take longer to grow your business using this method, it could pay off later when you own the entire percentage of the wealth pie.

Bootstrapping involves:

  • Using funds from your own savings account
  • Not spending more than what your current cash flow will allow
  • Opting to DIY instead of hiring professionals right away
  • Increasing client work and sales slowly while saving the profits

According to serial entrepreneur Matt Clark, entrepreneurs that bootstrap are more resourceful, creative, and have better business smarts overall.

2. Traditional Bank Loans

Banks can provide a wide variety of lending options for small business owners, including short-term or long-term financing for nearly every venture. The only thing that determines whether or not you will be approved for a business loan, is the fact that you need enough cash flow to repay the principal plus interest.

Oftentimes you can leverage your personal home, or other assets and properties you own, as collateral for the loan. Currently, business loans are more widely available from community or local banks, as large banks have cut lending to small businesses in general.

Another perk of applying for a loan at a community bank is that your new small business may not have proven to be creditworthy yet, and local banks have a higher chance to approve loans.

A few disadvantages include the risk of losing any personal collateral that’s tied to a traditional loan. And since a new business may have a hard time qualifying under it’s name, the entrepreneur will have to apply under his or her name instead.

3. Small Business Administration (SBA) Loans

The SBA offers several different types of loans for small business owners that come with competitive interest rates and flexible terms. This program was established to aid business owners who might be having trouble qualifying for traditional bank loans.

All you need to become eligible for consideration, is some business equity and collateral (like your home), as well as management experience, and a clean criminal background. Here are two of their most popular options:

Basic 7(a) loan. This type of loan is available for starting, acquiring, or expanding a small business, and is the most basic type of loan from the SBA’s business loans programs. In order to qualify, you will have to apply for the loan with a participating lender in your area.

Microloan program. These are small loans made available for newly established or growing startups. Nonprofit community-based lenders work with local institutions and the SBA to connect business owners with loans of up to $50,000.

4. Crowdfunding

An up-and-coming way to fund your new business is through crowdfunding, where multiple investors and individuals pool their money to reach a certain goal.

Although Kickstart has been instrumental in helping entrepreneurs launch their business ideas, there are a few sites specifically dedicated to helping businesses obtain the funds they need.

They include:

  • Fundable: A hands-on crowdfunding services dedicated to helping new business raise capital.
  • Crowdfunder: A site that connects entrepreneurs with investors who can help fuel and launch their startup idea.
  • Small Knot: With the focus on investing in your community, this site encourages putting money into local shops and businesses.

5. Business Credit Cards

A report by SBA.gov found that credit cards are often the most common source of funding chosen by entrepreneurs, and roughly 7% of all startup capital comes from credit cards.

Although credit cards can have high interest rates attached to them, if you have decent credit you may qualify for a low or special interest rate. Since the vast majority of small businesses in the U.S. are owned by sole-proprietors, using personal or business credit cards to fund business ventures is a popular choice.

Many business credit cards also come with extra perks, like points or cash back, when you spend money on items you would be buying anyway. So it’s a good way for your business to recoup some of its cost.

It’s also a simple process for keeping track of all the expenses your business paid out over the course of an entire year. And if you have employees or team members, using a separate business credit card is a good way to simplify your account process. Easily view your statements and keep them as proof that you qualify for all the deductions on your tax return.

Credit cards can be a good short-term option to give your new business a boost when first starting out, but shouldn’t be viewed as a long-term financing solution.

6. Angel Investors

Angel investors are rich investors who provide start-up capital for businesses in exchange for equity. The government actually encourages angels to invest by offering tax benefits, which helps offset the often extremely high amount of risk.

Receiving funding from an Angel investor is a faster process versus getting a bank loan, but Angel investors can be hard to find, and may want their own say in how the business runs. Most Angel investors are professionals like doctors, lawyers, and businessmen or women, and they generally have access to a large amount of capital.

If you’re looking for a mentor who can help grow your business and give you solid business advice, this could be a great option. However, you might lose 10-50% of the equity in your business in order to gain the adequate funding you need.

The Best Funding Sources for Small Businesses

These are some of the best funding sources available right now for small business owners and startups. Considering the type of business you’re building, and your personal needs as an entrepreneur, will be essential to choosing the best funding for your situation.

What’s another funding source or tactic you’ve used to grow your business?

About Carrie Smith


Carrie Smith is a financial artist and founder of The Client Connection, a matchmaking service for clients and freelancers who want to avoid job boards and instead build quality businesses. In 2013 she quit her full-time accounting job and now works as a full-time business consultant and writer. Find her on Twitter (@carefulcents).

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Stephen Alberts

Good read. Bootstrapping it! There is no way I’m going to give up some of the “wealth pie” (love that btw!) or put myself and family in the hole with a loan.

Walt

Bootstrap all the way but have 6 months worth of money to live on. Don’t ever take out a loan, it’s a disgusting feeling to be in debt.

Toby

I agree with Stephen, “wealth pie”! LOL

Great article Carrie, I like the summaries.

Y

thanks Carrie for the post! bootstrapping is exactly what we’ve been doing to fund our own startup and we felt validated seeing bootstrapping listed. in general, people expect us to be seeking funding, but we seem to be growing in our own way!

Carrie Smith

Yay for bootstrapping! I also agree with Walt’s point about not using debt to fund a business. It’s usually a crippling choice for most startup businesses (at least in my personal experience). Also, I’m glad everyone likes the “wealth pie” comment!

JDLmobiles

I agree with Carrie Smith, Great article Carrie

JDLmobiles

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