This is a guest post
If you’d love to know how to raise money for a business, here are 7 routes to help you get your empire off the ground!
Starting a lifestyle business is a dream come true for many people, but it’s also a matter that requires an enormous amount of thought and dedication. Some might even say that it’s a process of trial and error, yet there’s one mistake no startup can afford: lack of funding. That’s because 90% of businesses fail, and running out of funds is the number one reason behind their failure.
Money is the bloodline of every business and what starts with a brilliant idea needs fuel in the form of capital in order to generate revenue. It’s especially important if you’re a solopreneur or a digital nomad who wants to work for themselves only.
When it comes to financing options, deciding to take on some kind of debt or low rate personal loans is quite common, but not everyone feels comfortable enough with doing so. Luckily, there are plenty of other possibilities, ranging from exploring crowdfunding, microloans, or credit cards for small businesses.
With funding being one of the most important things every aspiring entrepreneur should consider, let’s take a look at different methods you should consider, when thinking about how to raise money for a business:
- Funding is Crucial for Business Success: Understanding that lack of funding is a major reason for startup failure highlights the critical role money plays in the success of any business.
- Diverse Funding Options Exist: Exploring crowdfunding, side jobs, bootstrapping, microloans, credit cards, peer-to-peer lending, and government grants provides entrepreneurs with a range of choices suited to their circumstances.
- Crowdfunding Builds Community: Utilizing crowdfunding not only raises capital but also builds a community of supporters who share a genuine interest in the business, fostering engagement and potential long-term success.
- Side Jobs Provide Stability: Keeping a current job while pursuing a business on the side offers stability, ensuring a steady income while working on the business until it generates sufficient revenue to support full-time entrepreneurship.
- Microloans for Qualifying Entrepreneurs: Microloans, offered by nonprofits and government agencies, provide a viable option for entrepreneurs who may not qualify for traditional bank loans, emphasizing the importance of a solid business plan over credit scores.
Crowdfunding is a method that enables ambitious entrepreneurs to get funding from websites where investors can support different businesses no matter where in the world they are located. The funds may be just a one-time investment that’s intended to help the business, such as a rideshare rental company, a digital marketing agency, or a different type of a promising organization, start operating and get out there, or continuous support to carry the company through the difficult early stages.
Setting up your own crowdfunding campaign is quite straightforward – all you need to do is set up a profile on a crowdfunding website of your choice (e.g. Kickstarter, Indiegogo), describe your business and its operations, and set the amount of money you aim to raise.
You can then share the link to your fundraising page and encourage people to invest in your project. Those who find your plans interesting can donate to your campaign, most often in exchange for some kind of reward. For instance, the reward can later come in the form of an exclusive discount on one of your products.
A crowdfunding campaign is a perfect way to gather a community of people who share a genuine interest in your ideas. It also provides a sense of engagement for the donor, and in a situation where it’s reward-based, can be particularly attractive for startups, as this way, you can avoid giving away equity or part ownership in your company.
If you don’t want to put all your eggs in one basket, you can explore the option of raising money for your business by keeping your current job and using the money you earn there to invest in your side hustle. This way, you can be sure that you have a stable income coming in every month, which can help you weather any storms that might come your way during the early days of entrepreneurship.
The most significant advantage of this method is that you can keep your day job while working on your business on the side and only quit when your company starts making enough money to support you. This way, you can be sure that you won’t run out of money and will have some time to think about your business model and how to make it work before taking the plunge into the unknown.
And if you’re still gathering money to start off, you can find a side gig to maximize your earnings.
Bootstrapping is all about using the minimum amount of resources needed to create something of value. When it comes to business, it usually refers to starting a company with little to no money. You might have heard about some tech companies that started in a garage – that’s bootstrapping for you.
The advantage of this method is that it allows you to maintain full control over your company as you don’t have to give up any equity to outside investors. Bootstrapping is perfect for companies that don’t require a lot of money to get started, such as service businesses, online businesses, or consulting firms.
The downside of this approach is that it can be quite slow, as you’re limited by the amount of money you have on hand. And since you’re starting with little to no money, it might be difficult to scale your business in the future.
Still, bootstrapping is a great way to get your business off the ground without going into debt or giving up any equity in your company.
Microloans are small loans that are given to entrepreneurs who need to raise money for their business but might not qualify for a traditional bank loan. Microloans are often given by nonprofit organizations and government agencies and can be used for a variety of purposes, such as working capital, inventory, or equipment.
The advantage of this method is that it’s easier to qualify for a microloan than a traditional bank loan. This is because microlenders are more interested in your character and your business plan than your credit score.
Another significant advantage is that you can use the money you borrowed to get your business off the ground and then use the profits to pay back the loan. This way, you can avoid going into debt and only pay back the loan once your business is up and running.
The downside of this method is that you might have to pay higher interest rates than with a traditional bank loan. Still, microloans can be a great way to finance your business if you have a solid business plan and you’re willing to work hard to make your business a success.
When considering how to raise money for a business, a small business credit card is a very accessible way to get started.
This financing method only requires you to have a credit card with enough credit limit in hand and use it to pay for things at the beginning of your journey with entrepreneurship. Luckily for fresh solopreneurs, there are plenty of credit card issuers (e.g. Capital One, Bank of America) who cater to small businesses and some with attractive benefits, such as cashback rewards or even airline mileage points.
Before you decide on this solution, you need to keep in mind that some issuers may require that the small business card be tied to your personal credit score and credit history. This can serve as a form of a guarantee from you – the owner. However, this would simultaneously mean that any defaults or late payments on the business credit card could affect your personal credit score.
If you’re worried that financing your startup with a credit card might lead you to make bad financial decisions, you can also try visiting the bank of your choice and exploring options such as loan programs, micro-credit programs, or even financing programs for entrepreneurs.
Peer-to-peer lending is a way for people to lend money to individuals or businesses where no intermediaries are involved in the whole process. In a nutshell, lenders lend money to borrowers and this money is treated as their investment, which the borrowers then have at their disposal in order to invest in their startup.
Peer-to-peer lending is a process in which lenders can earn from borrowers because the interest rate offered is higher in comparison to banks, non-bank financial institutions, and Monetary Financial Institutions. For an entrepreneur, peer-to-peer lending is a great way to raise money for a business and for the lender, it is an investment.
Our last suggestion for how to raise money for a business is to apply for a government grant or loan.
Depending on the country you’re based in, it might be possible for you to get the much-needed financing for your venture from the government in the form of microcredit or a grant. This could happen if your business idea has significant potential to contribute to a particular program that the country is already investing in.
For instance, if you’re in the U.S., you can head to the federal government page dedicated to grants and search through the database of funds the government is going to give away. You can find thousands of grants to apply for with opportunities provided by companies from virtually all backgrounds.
Similarly, in other countries, like Singapore, the government offers support to small and medium-sized enterprises (SMEs) to adopt digital solutions and technologies. These come in the form of business grants, subsidies, and loans aimed at boosting digital transformation efforts for businesses.
Still, you need to remember that not all funds come straight from the federal government and some are instead distributed to state and local governments and agencies, nonprofit organizations and institutions of higher learning. Then, these entities may be responsible for distributing the funds on a local level. You will also need to fulfill legal requirements that will be unique for that government and have to stick to the rules and requirements of that particular government.
Pros and Cons of Different Funding Methods
- Diverse Funding Options:
- Entrepreneurs benefit from a variety of funding options, including crowdfunding, side jobs, bootstrapping, microloans, credit cards, peer-to-peer lending, and government grants, catering to different business needs and circumstances.
- Community Building through Crowdfunding:
- Crowdfunding not only raises capital but also builds a supportive community around business ideas, fostering engagement and potential long-term customer relationships.
- Stability with Side Jobs:
- Pursuing a business while maintaining a current job provides stability, ensuring a consistent income stream and a safety net during the early stages of entrepreneurship.
- Control and No Equity Sacrifice with Bootstrapping:
- Bootstrapping allows entrepreneurs to maintain full control over their company without sacrificing equity to outside investors, making it an attractive option for businesses with modest startup costs.
- Microloans for Qualifying Entrepreneurs:
- Microloans, offered by nonprofits and government agencies, provide a viable option for entrepreneurs who may not qualify for traditional bank loans, emphasizing the importance of a detailed and solid business plan over credit scores.
- Slow Growth with Bootstrapping:
- Bootstrapping may result in slow business growth due to limited initial funds, potentially hindering scalability in the future.
- Higher Interest Rates with Microloans:
- While microloans offer accessibility, entrepreneurs may face higher interest rates compared to traditional bank loans, affecting the overall cost of raising funds.
- Risk of Overreliance on Personal Credit with Credit Cards:
- Using personal credit cards for business financing may pose a risk as some issuers tie the business card to the owner’s personal credit score, potentially impacting personal credit if there are defaults or late payments.
If you want to be able to grow your business and keep it running for years to come, you’ll need to know how to raise money for a business. Financing your venture is a complicated process, but as long as you do your research and look into different options, it doesn’t have to be the reason behind your sleepless nights.
Whether you choose bootstrapping, crowdfunding, decide to get a small business credit card, or go with peer-to-peer lending, one of these methods should be helpful in getting funding for your business operations. Depending on where you live and what programs are available in your country, you can also try getting government grants and loans or check whether business incubators and accelerators are available.
Tailor your funding search and your approach to the needs of your business and explore your possibilities.
How to Raise Money for Your Business – FAQ’s
What is the fastest way to raise money for a business?
The fastest way to raise money for a business often depends on the specific circumstances and needs of the entrepreneur. Crowdfunding and small business loans can provide relatively quick access to funds, especially if there is a compelling business idea and a solid business plan in place.
How do you raise funds for a startup?
Raising funds for a startup involves exploring various funding options. Entrepreneurs can consider crowdfunding, seeking private investors, or even applying for microloans from nonprofit organizations. Building relationships with potential investors and presenting a detailed business plan are crucial steps in attracting funding.
What are the options for raising money for a company?
There are several options for raising money for a company, including crowdfunding, bootstrapping, microloans, venture capital, and strategic partnerships. Entrepreneurs can also explore traditional avenues like small business loans or seek the support of angel investors to secure startup capital.
Where can I get money to boost my business?
To boost your business, consider multiple avenues for financing. This may include approaching potential investors, building relationships with venture capital firms, exploring microloans from government agencies, or even relying on a detailed business plan to attract private investors. Strategic partnerships can also be a valuable source of funding for business growth.