It’s exciting to start your own business. It can also be overwhelming, especially when figuring out how to pay for it. So, if you’re wondering How Will I Fund My Business? The good news is that you can have a variety of ways to fund it. You can use a combination of methods and of course, some will be better than others due to risk and future commitments. Funding can even affect your new business’ financial success.
Key Factors Funding New Businesses:
- The Small Business Association estimates that 600,000 new U.S. businesses open each year
- New microbusinesses may need around $3,000 as startup capital, while the amount needed falls between $2-6K for most home-based franchises
- In 2021 the top 3 states to start a small business were Montana, South Dakota and Florida
- You have 3 major options for funding your new business including: self-funding, investors and loans.
Getting New Business Funding
If you’re considering launching a new business you may want to consider doing it in one of 2021’s 10 Best States to Start a Small Business.
When starting a new business one of the things that can help its success is where you open that business. Obviously if you don’t live in one of these states or can’t move there use your online presence to target these states and their best markets.
The below list takes into account each state’s – tax climate, consumer spending in that State, number of entrepreneurs opening new businesses, rate of survival, Business, Labor Costs, and the state’s weather and/or Climate. The top 10 include:
3 Main Ways to Fund Your Business
Your business will be unique and so your funding. This step of figuring where the money will come from is ultra-important in preparing to open your new business.
First figure out how much money you will need through funding. Make a list of every expense possible and add a 15-20% cushion for unexpected costs. If you’re buying a franchise, the franchiser will most likely want you to do as well as possible so will supply an exhaustive list of all foreseeable startup costs.
Also, seek out and use the resources of local organizations and the SBA (Small Business Association). If possible, network and talk with companies doing the same thing but in other states or markets.
Options for Funding your New Enterprise
You Could Self-Fund Your Start-up
Now you know how much you’ll need so it’s time to think about where it’s going to come from.
Perhaps you’ve won the lottery! If not, it’s more likely you’ve thought about how to fund your business for quite a while. Maybe you began saving early so you have enough to get going. That’s fantastic!
Self-funding can give you full autonomy. You get to call the shots without input from others.
The reality is that in today’s business climate many new business owners aren’t able to completely self-fund and look elsewhere.
Depending on your situation, dipping into savings or 401 (k) might be too risky and expensive due to early-use fees and penalties. Also, if you’ve reserved those funds for an emergency, education, retirement, etc looking elsewhere for your funding makes sense.
Find Yourself an Investor or Partner
If self-funding is out of the question or only gets you part way there then you could borrow from family and friends but there are inherent relationship risks with going this route.
Looking for investors or partners is an option. Again the SBA may be able to give you pointers on finding investors. Check out SBIC loans. Schools and other businesses in the community may be able to help you find interested partners.
Obtaining venture capitol from investors has it’s good points and it’s not so good. You’ll get your money but usually you give up some ownership and control of your business. This investor may want to play a role in your company and on a day-to-day way. You need to think about how that will affect the business you want to grow.
Having an experience partner or investor could help you grow the business more quickly. They may ask for a seat on your board of directors (if applicable), an equity-only arrangement or they want more active involvement. They may demand some control over direction and focus in order to protect and grow their investment. A big risk here is that your business may not end up being exactly what you envisioned.
How to Find and Work With Venture Capital Funding
There are several steps on the way to obtaining venture capital to fund you new business. Follow these 5 steps and you’re off to a good start.
- Find Investors Who Fund Startups
You may find an individual who invests or a tradition firm offering venture capital. You want a reputable company and one with a track record for funding startups.
- Get Your Business Plan Ready for Funding
A comprehensive business plan will be required. Seek help if you’ve never done one of these before. Savvy investors know what their looking for. In fact, they may be willing to share exactly what information they will need from you.
- Due Diligence Review is Required
Investors want to be assured that you’re a good risk and will want to know who will be managing the company, the market you’ll be targeting, your products and/or services on offer, whether you’re in compliance and your financial documents to date.
- Terms Their Willing to Offer
This can take some negotiating to hammer out the details of funding amount, involvement in your company and other requirements for moving forward.
- Their Investment Lands in Your Bank
Unlike a personal loan, often venture capital funds arrive in ’rounds’. This means that as you meet agreed upon company milestones, more capital lands in your bank.
Crowdfunding for Your New Venture
Make your funding possible with crowdfunding where lots of people invest smaller amounts to bring a business to life! Crowdfunders are unique ‘investors’ because they don’t’ get part of your business, control or any financial return.
What they do get is some kind of ‘gift’ in return that thanks them for their help in getting your business off the ground. The gift often comes in the form of one of the products produced thanks to your support or other perks. They could get to meet you, the owner, or get free ‘coffee’ or whatever your service is for life!
Crowdfunding participants love being able to say I helped make that happen J. As a business owner this is a no-risk option. You keep control of your business, you typically don’t have to pay back the crowd funders and you have a built-in fan base for once you launch your product/business.
How Can a Small Business Loans Work for Me?
A small business loan could be the answer if you don’t have enough savings and you’re set on keeping control of your business. Before applying for this type of loan prepare a comprehensive business plan and a full account of expected expenses. In addition, be ready to show a projected finance schedule for your business that includes the next 5 years.
If you haven’t done this work then lenders get concerned that you haven’t given this enough thought. It makes you look like you wouldn’t be a good lending risk.
With your plans and other materials in hand reach out to credit unions, banks and the SBA to apply for your loan. The SBA could agree to guarantees your loan.
Word of caution: Interest rates and terms can vary hugely. The difference in a percentage point of additional years added to a loan could mean hundreds or even thousands more paid in interest. That additional interest could make it harder for you to pay back your loan. This could hurt the financial success of your new business. So if you are approved, don’t just take an offered loan without doing your homework.
If you’ve had no luck at your bank, credit union, or the SBA try a broker lender, like Funding Zest, for a personal or payday loan. The application process is 100% online, you get an instant onscreen decision and you could have the money in your bank within hours or the next business day.
Starting a new business is exciting and takes a lot of prep-work in terms of knowing costs and how you’re going to fund it. Look at all your options. Find the best fit for your vision or dreams. Avoid funding options that won’t put you in financial straights and/or give you the amount of control you want in your business.