Today’s economy is quite challenging and unstable. This is why the process of small business funding can be quite tricky. People, especially business angels and sponsors, have become more suspicious under the given circumstances. Therefore, attracting funds has become more and more difficult.

small business funding methods

What Does a Small Business Funding Mean?

Financing a startup or a small company refers to the methods in which a business owner tries to gather money. This amount of money will be used to help the business’ implementation and growth as well as the business’ future activities. Because of the economic crisis that took place back in 2008, the diversity of small business funding methods significantly decreased.

However, people’s creativity and imagination have no limits. Therefore, during these uncertain times, alternative types of small business funding have emerged.

How to Getting Funding for A Small Business?

Every business needs money and cash flow to work properly, especially startups and small businesses. The main thing that everyone thinks of when discussing funding methods is a loan. This can be a viable solution. However, in these last few years, banks have started to ask for more requirements from their clients. You should try a loan if you are sure you can support it and pay it while also building your company. Otherwise, a loan might be risky for you.

Crowdfunding Platforms

crowdfunding small business funding methods

This is a small business funding method through which you can go directly to the public and see how many people are interested in helping your business grow. There are a few simple steps to obtain the expected funding results.

First, you will need to develop a strong and persuasive business pitch and upload it on a specific platform of your choice. Interested people will be able to contribute to your small business funding objective. However, be careful when choosing the fundraising platform, because some of them charge a big transaction fee that can reach up to 5-10 percent of the total amount of raised money.

Factoring

This is a small business funding method in which a business sells its receivables at a lower price than normal to obtain cash up-front. This is a common fundraising method among poor credit businesses as well as small manufacturers.

On the downside, this fundraising option is quite expensive. Businesses that choose this alternative usually have to pay a fee, a certain percentage of the sum they received. Some factoring companies are trying to make this fundraising option a more competitive one. However, its popularity has significantly decreased.

Friends and Family Resources

Although it is simple to ask the people close to you for money, it is also a tricky thing to do. For example, you might ask a close friend to lend you a certain amount of money, and you promise him/her to give back the entire sum in a 6-month period. However, your business turns out to be a failure, and you find yourself in a rut. Most likely, you will lose both the money and your close friend.

However, this is a nice option to try if you don’t have any other alternatives. If you don’t want to risk a lot by receiving loans from those you love, you can convince them to invest in your business idea. This way, they will be active participants in the whole process. On the other hand, you have to make sure that they fully understand the possible consequences should  the company not work out.

Attract A Business Angel

To convince an Angel investor, you will have to create a powerful and persuasive business pitch. You should follow some tips and recommendations such as the following:

  • Maintain clear and concise language. Don’t use fancy vocabulary that includes jargons.
  • Add experience. Usually, business angels are afraid of investing in inexperienced young entrepreneurs. It would be a good idea to have someone more experienced on your team, or at least, to hire an adviser, for a short period.
  • Show your true calling. Business angels can see the difference between a passionate business person and a person who only wants to gain money.
  • Think of a plan B, from the very beginning. You shouldn’t lay all your eggs in one single basket. As an intelligent business person, you have to think of multiple ways of generating income, or in this case, of fundraising options.

Venture Capital

venture capital small business funding methods

As much as you would like to avoid this subject, there comes a time when you won’t be able to keep your business running unless you take a bank loan. Whether you need your business to grow, or you need more operating capital, you will need to choose a bank loan as a small business funding option.

You can even secure the loan. However, to do so, the financial institution will require you to provide any necessary information regarding your activity and your business performance. This process may take a quite long time, even a couple of years. To gain the bank’s trust, you should negotiate a contract with them from the very beginning of your business.

Government Funding for Small Business

There are plenty of solutions when you are in need of a small business startup funding. Especially if you are at the beginning of your business adventure, you can try to receive a small business funding from the Government. Even if there are chances you might not get it, don’t hesitate to apply.

  • CDFI. This is the abbreviation for The Community Development Financial Institution. This is a financial intermediary who has the sole purpose of community development. This institution attracts money from the public sector as well as from private sources. It provides both credit and financial services to communities who find themselves in difficulties.
  • SBA guaranteed loans. This method is useful to apply for when you cannot find other alternatives for your small business funding. They offer loans to startups and small companies that are not able to receive money using common channels.

To sum up, the process of small business funding can be complex and take quite some time. However, if you already have created a great business pitch, you should go ahead and try some of the fundraising options described above. Don’t worry if the first choice doesn’t work. Don’t give up, be perseverant, and you will find a proper solution for your company.

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