Thinking about starting a new business but wondering where you’ll find the money to get started?
Unless you have a stack of extra cash burning a hole in your wallet or a hefty savings account, you’re going to need to locate some money in order to fund your new business.
Let’s talk about how to find the money you need so you can start your journey as a small business owner. Below are just 13 ways to get you started.
1. Personal savings and assets
If you’ve been saving up for something special, starting your very own business might be that something special. If you can afford it, consider using your own money to fund your business. This will prevent you from taking on debt and making interest payments, which means you’ll be able to grow your business a lot quicker.
Also, you can consider selling some of your personal assets such as real estate, vehicles, boats, jewelry, or any investments (stocks, bonds, etc.). Before you decide to do this, make sure you research the tax implications associated with selling the specific asset.
2. Loans from friends and family
If you feel like your business idea is a real winner then reach out to family and friends and see what they think. If they agree with you, then ask if they’re interested in giving you a personal loan to get things moving. Of course, when it comes to borrowing money from family and friends you want to ensure you have specific terms in place such as:
- When the money will be paid back.
- How the money will be repaid (installments, one lump sum).
- Will they charge you interest (if so, how much?)
- What happens if you can’t pay them back.
Money is one of those things that can ruin a relationship so enter into this funding option with caution.
3. Home equity line of credit (HELOC)
If you’re a homeowner, you can look into borrowing against your house in order to free up money for your new business. The equity in your home can be used to take out a home equity line of credit (HELOC). A HELOC is a revolving line of credit that you can access whenever you need money. You only pay interest on the money that you use. It’s similar to how a credit card works.
4. Home equity loan
A home equity loan is another way you can use the equity you’ve accumulated in your home. A home equity loan comes in a lump sum payment and is paid back in a predetermined amount of time. It has a fixed interest rate and you make the same payments on a monthly basis.
5. Cash-out refinance
This is yet another way you can use the equity in your home to help finance your new business. With a cash-out refinance, you pay off your existing mortgage with a larger loan amount. The difference between what you owed on your mortgage and the new loan can be taken out in cash and used to finance your business.
For example, if your home is worth $300,000 and you still owe $100,000 on your mortgage. With a cash-out refinance, you could take out a loan for $150,000, use $100,000 to pay off your remaining mortgage, and then use the additional $50,000 in cash to fund your new business.
Run your own numbers with MU30’s calculator below:
6. Business loan
A business loan is a loan that is intended to be used for business purposes. The specific criteria you need to qualify for a loan will depend on the lender. However, most lenders will want to know your credit history and how you intend to use the funds.
7. Use a business credit card
If you can’t qualify for a loan, you can consider using a business credit card to help get you started. If you decide to use a credit card be sure you can pay off your balance in full each month. This will help you to stay out of debt. Also, make sure you spend some time researching business credit cards and compare them on things like interest rates, fees, and rewards so you can find the best deal.
8. Invoice factoring
Invoice factoring can be used as another alternative option to taking out a business loan. With invoice factoring, you sell your unpaid invoices to a factoring company. When your customers pay their invoices the money goes directly to the factoring company instead of to you. You also pay the factoring company a fee. Invoice factoring can be a good idea for businesses that need quick access to cash flow and are just waiting on outstanding invoices from reliable customers.
9. Peer-to-peer loans
With peer-to-peer (P2P) lending, instead of borrowing from a financial institution, you borrow from an individual or group of individuals. P2P loans are also known as social lending or crowdlending. The idea is that anyone can be an investor and lend money to the loan applicant of their choosing. The loan applicant is then responsible for repaying the loan.
LendingClub is an example of an online P2P lending site. P2P lending is a little less conventional than heading to your bank for a business loan, but it’s a great option, especially if you can’t borrow money from a bank or you just don’t want to.
Just fill out an online application form with some of your information and then you’re presented with a list of potential loan providers. It’s up to you to compare the providers on a number of different criteria and then pick whichever option is right for you.
Another option is Prosper. Prosper is the OG of peer-to-peer lending, arriving on the scene in 2005 as the first P2P lending marketplace in the U.S. Since then, Prosper has helped to facilitate over $17 billion in loans to more than 1 million people.
Crowdfunding is another more unconventional way to find funding for your small business. To utilize crowdfunding you will need to sign onto a crowdfunding platform and pitch your small business idea to the public. If people like your business idea then they can choose to fund you.
This option allows you to tap into a much more expansive network than just your own friends, relatives, and acquaintances. Popular examples of crowdfunding platforms include Kickstarter and GoFundMe.
11. Venture capital
You can also look for funding in the form of venture capital. A venture capitalist can be a person or a company that is interested in investing in your business. Usually, venture capital is offered in exchange for an active role in your company and ownership shares.
Venture capitalists typically focus on high-growth companies where they are willing to take on a greater amount of risk with the potential for even great rewards. Venture capital differs from a loan in that investors want equity in the company rather than repayment of the capital.
An incubator is a company that is designed to help start-ups succeed. Incubators are commonly non-for-profit and are often associated with universities; however, there are also for-profit incubators.
Some of the common services offered by incubators include networking opportunities, access to touch-down workspace and high-speed internet, as well as access to funding.
13. Government programs
With government programs, there are opportunities to find free money to help you start your new business in the form of grants.
Yes, it takes work to apply for grants and no, you’re not guaranteed to get them. But, if you do get the grant – it’s free money!
The Grants.gov website provides a common location for all of the federal agencies to post different discretionary funding opportunities. Rather than having to search for different grants individually, there is one central site to search from.
Grants.gov has over 1,000 different grant programs that provide over $500 billion annually in awards. This site is also useful because it has standardized the grant listings as well as the application process.
If you’re opening a small business you can also check out the Small Business Association website. You can search their database to see if there are any opportunities that fit your profile. If you don’t find anything, you can also see if you qualify for any of their funding programs or you can speak with one of their counselors to talk about how to finance your small business.
What local resources are available for potential business owners?
Whether you’re planning to set up your business in a small town or a big city you should do a search to see what local resources are available.
These resources can assist you with finding money as well as mentorship and educational opportunities to help your business become a success.
Small business development centers (SBDC)
The SBDC is a partnership between the U.S. Small Business Administration (SBA) and local colleges and universities. They provide assistance to small businesses by providing educational resources to business owners and prospective business owners.
Chamber of commerce
Check to see if your city or town has a Chamber of Commerce. The purpose of a Chamber of Commerce is to promote local business interests, help business owners find resources, and assist with the promotion of local businesses through different networking opportunities.
SCORE is another resource that works in partnership with the SBA to provide free mentoring and training to entrepreneurs and small business owners. You can visit their website to search for a mentor near you or you can establish a relationship by email or using video chat.
What to do before you ask for money
Before you go asking for money there are some things you should do to prepare. You’re likely to have more success getting a loan if you come across as competent and professional.
Create a detailed business plan
Where you go to find the money for your business will determine how detailed your business plan needs to be. For instance, you can probably provide less detail if you’re pitching to a family member versus an external lender. On the other hand, if you are trying to get money from a crowdfunding site then you are going to want to have a business plan or a pitch that is very engaging and easy to digest.
Regardless of where you are trying to seek funding, here are some general topics you should consider:
- Business summary. What is your business idea? What product or service are you selling? What problem are you trying to solve?
- Industry research. Who’s your competition? Is the industry growing or shrinking?
- Market research. Who’s your target customer? What is the size of the market?
- Strategy. How will you acquire your first customer or make your first sale? What is your plan for growth?
- Company member. Who is a part of your business? Is it just you or do you have partners?
- Funding needed. Do you need money to get started? If so, how much? How will you use the money?
If you want more guidance on how to create a business plan you can visit the Small Business Administration website.
Create a budget
When you’re looking for money to fund your business it’s important that you have a firm grasp of your numbers. How much do you actually need to get things up and running? Creating a budget can help you to estimate your financial needs. When you’re building your budget you can consider things like:
- Office space.
- Building a website.
- Legal fees.
- Licensing and registration.
- Employee salaries.
Common money mistakes you want to avoid when starting a business
There’s a lot to learn and do when starting a new business. To save yourself time, effort, and heartache, avoid these two common money mistakes.
Waiting too long before you borrow
A lack of capital is one of the leading reasons that new businesses fail. You don’t want to be lumped into this category. Make sure you carefully run your numbers when it comes to all of your start-up expenses. Try not to overestimate how quickly you will start to make money.
You want to avoid putting yourself in a situation where you have to borrow quickly in a time of desperation. When you’re desperate for money this might cause you to make a financial decision that you otherwise wouldn’t have when you had a clear head and more time.
While it’s important to have the money you need to get started, you don’t want to take on more debt than you have to. Again, doing your research and running your numbers is necessary in order for you to make wise financial decisions.
For help estimating how much you’ll need to get started, you can visit the Small Business Administration website where they offer tips and a useful calculator to help you determine your potential start-up costs.
Not separating your business and personal expenses
If you don’t have a separate bank account for your business and personal expenses get ready for a major headache come tax time. When you lump all of your expenses together, you’ll have to go through the process of sifting through your receipts and bills to determine what’s personal and what’s business. This will be an even bigger problem if the IRS audits you. Not having separate bank accounts for business and personal expenses can also make it more difficult to get a business loan.
If you haven’t opened a business bank account yet I recommend Novo‘s checking account. It’s a terrific product for businesses, whether you’re new or established because it was specifically designed for small business owners and entrepreneurs like you. There are no monthly fees and no minimum balance requirements, you just need $50 to open your account and get started.
You’ve got a great idea, a solid business plan, and now you’re equipped with the information you need to find funding to make your business dreams a reality.
No matter what your business is, there are tons of funding options available. You don’t have to go the traditional route of taking out a business loan from your bank (although this is a solid choice). With peer-to-peer lending options, crowdfunding, business credit cards, and opportunities to get free money through grants, you can work towards finding the money you need to be successful.
Be sure to avoid the common money mistakes that people make when looking for funding. Separate your business and personal accounts and make a thorough budget so you have a realistic estimation of the money you’ll need to get started.