From Grants to Crowdfunding: Here Are All the Ways to Fund Your Small Business

You have a great small business idea. You just need money to get it off the ground and profitable. Where can you get the funds?

Traditional small business loans can be hard to get if you’re not already in business and doing well. But these days, aspiring entrepreneurs have lots of options for funding. There are a number of grants available on the state, federal, and local levels, for example. You can choose a non-traditional small business loan from an online lender.

You can dip into your retirement or other personal savings to bootstrap your business. You can take out a home equity line of credit (HELOC), use credit cards to fund your business purchases, raise funds via crowdfunding, or even attract investors. Here are all the ways you can fund your small business.

Small Business Grants

Grants are the preferred way to go when it comes to funding your small business because you don’t have to pay them back. There are lots of grants available to small business owners and aspiring small business owners, particularly women and minorities. You can go to Grants.gov to search for and apply to federal small business grant programs.

You may also want to contact the Small Business Administration to learn about economic development programs in your area. These programs are administered by states, counties, and municipalities and can include small business grants and loans. While finding these resources can take some detective work, they’re often an excellent source of both funding and local business advice.

Loans from Traditional and Non-traditional Lenders

Small business loans from traditional lenders can be hard to get if you’re just starting out. That’s because traditional lenders usually want proof that your business is profitable before they’ll be willing to lend money to you.

And many businesses aren’t profitable in the first few months of operations – many take a year or more to become profitable. Unless you have some property to put up as collateral, many traditional banks won’t loan to you for startup costs.

However, that doesn’t mean you can’t get a loan to start your small business or to cover operating expenses until you start to make an income. You can apply for small business loans online through non-traditional lenders.

Alternative loans can be secured through your invoice or through your equipment. You may also consider borrowing money from friends and family – but if you go this route, make sure you agree on clear repayment terms and know that if you fail to repay loans to friends and family, your relationships could be on the line.

Your Own Savings

Today’s aspiring entrepreneurs are increasingly ponying up their own dough to start their businesses. You can start many businesses with less than $10,000 in start-up capital. Younger entrepreneurs may scrimp and save specifically for this purpose, while older individuals may choose to cash out their retirement accounts to fund a business.

If you decide to cash out your retirement account, you should educate yourself on the penalties you’ll have to pay and what kind of taxes you can expect to pay on that money.

HELOCs and Credit Cards

If you own a home and have some equity built up, you could take out a HELOC to fund your startup costs. Of course, it’s always riskier to use your personal funds and assets to start up a business, because if your business fails, you could lose everything you’ve worked all your life to obtain.

But if you’re confident that your business will be successful, a HELOC can be a way to access a substantial chunk of money, and interest rates on these types of loans are typically low.

Business credit cards are another option if you need to buy equipment, supplies, and inventory to start a business. You can take out a business credit card, so you don’t have to muddle your personal and business finances.

You can borrow exactly as much as you need, and you’ll build up your business credit score while you’re at it. Many business credit cards have great rewards programs, too.

Crowdfunding

Crowdfunding is a fairly recent player in the small business funding space, and it may or may not work for your business, depending on how well you get the word out and how excited potential customers are for your business.

Typically, you use a crowdfunding site like Indiegogo, GoFundMe, or Kickstarter to solicit funding from people who are interested in your products and services.

Instead of giving equity in your company in return for investments, you’ll give your products (once you start manufacturing them) or other rewards like t-shirts, gift cards, stickers, or tote bags.

Investors

Attracting investment funds from angel investors or venture capitalists can provide a large cash infusion to start and grow your business, but you typically do have to hand over some equity in the company in return.

Investors also expect to see substantial growth and a strong return on their investment within a relatively short period of time, so this option is best for starting a company with rapid and large growth potential.

If you’re looking to start a new business, make sure you explore all of your funding options. When you get small business funding right, everything else should fall into place.