You have an epic — and unique — idea for a small business.
You know where you’d like to be located, the kinds of people you’d hire, and even your target market and buyer demographic.
The only thing standing in your way? A serious lack of capital.
In this article, we’ll teach you how to get the business financing your company deserves. From nailing a pitch to an angel investor to understanding where you can find the right grants, we’ll give you the down and dirty details of how to knock ’em out.
Read on to learn the most effective ways to understand how to finance a business.
1. Pitch an Angel Investor
One of the best things that you can do when it comes to small business financing options?
Consider working with an angel investor. This is someone who has the capital — and the risk tolerance — to be able to supply you with lots of funding to get your business off the ground.
They likely invest in startups and small businesses as their main source of income. This means that they hear pitches all day, every day. So, you have to do what you can to get yours to stand out.
Talk to them about what they stand to gain from investing in your business.
What percentage of ownership or profits will they be able to share if they invest? How soon do you expect to be able to make a profit? What do you anticipate when it comes to your overall operating costs? Who are your competitors, and how are you different from them?
These are all absolutely questions you need to be able to answer — and answer well — before you even think about meeting with an angel investor. Usually, you only get one shot to pitch to them.
Make sure you’ve done everything you can to do it right.
2. Apply for a Business Loan
Of course, no conversation surrounding your business financing options would be complete without a mention of business loans.
There are quite a few things to consider here. The last thing you want is to end up in a cycle of debt you can’t get out of because you made a poor choice when it comes to lending.
First of all, as tempting as it might be, always apply for the minimum amount of money that you need to succeed. This will help you to ensure that you stick to your budget. You’ll likely also be able to pay off the loan much faster, and you won’t get hit with sky-high interest rates.
And speaking of those interest rates? Make sure you understand if they’re fixed or variable. Will you be paying the same amount of interest on your loan every month? Or, will that interest rate fluctuate according to the specifics of the payment plan?
It’s well worth taking your time and finding the lowest possible interest rate. When in doubt, remember that many lenders are willing to work with you. Speak with specific lenders to see if they’re open to the idea of negotiating when it comes to interest rates.
Additionally, make sure you’ve studied up on any fees associated with the loan. The same goes for any penalties you’ll have to pay because of a late payment (or even paying off the loan early.) In some cases, there may even be an application fee associated with the loan.
Finally, look at the overall lifespan of the loan.
You don’t want it to be too short, because you need time to pay it back in full. However, it’s also not something that you want to have hanging over your head for years and years. Find your lifespan sweet spot.
3. Consider Crowdfunding
One of the most popular small business financing options?
Crowdfunding.
In fact, crowdfunding has raised more than $738 billion in a single year for businesses in the United States alone.
We know you’d love access to that kind of money. Of course, in order to get it, you’re going to need to incentivize your backers. You may not be able to provide everyone with a free product, but there are still ways that you can reward those who help you to raise funds.
For example, you could give them a shout-out on your social media, or send them a handwritten thank you card. This is a good reward for smaller donors, as it doesn’t take much effort or resources.
If you want to go after bigger fish, you’ll need to offer bigger rewards.
Let’s say you’re starting a business that provides meal planning options and food delivery to the elderly.
For those that give $1,000 or more, you’ll send three days of free meals to a needy elder in their name. Perhaps you could invite those that give $5,000 or more to your company’s launch party.
The sky is the limit when it comes to these rewards, so don’t be afraid to think outside of the box.
4. Strategic Partner Financing
If you want to learn how to get capital for business, the truth is that you won’t always be able to do it on your own.
You might need a partner that will help you get there. Enter the world of strategic partner financing.
In a nutshell, this is the idea that you’ll work with someone else in your industry. They’ll give you the cash you need to get your business off the ground. In return, they’ll get your distribution rights, have early access to your products/services, and even pocket some of the profits.
It’s smart to think of these partnerships as equity sales, not loans.
In addition to giving you the money you need?
You’ll also be able to pick the brains of those with more experience in your industry. And because they get a portion of your profits and stand to benefit financially from your success in other ways?
They’ll want to be involved. They’ll help you to stay on track, offer advice, and keep you moving in the right direction. That’s a partnership that truly benefits everyone.
5. Look for Business Grants
If you want to learn how to finance a business, then you first need to understand how to find and apply for the right business grants.
This is essentially free money to help you get your business off the ground — which means you’re going to have to work hard to get it. Business grants come in a variety of different amounts and even pay intervals.
For best results — and to get as many different small business financing options as possible — we suggest that you apply to as many as possible.
Start by looking on the local level.
Connect with local business administrations and even clubs and organizations. Even if the grant isn’t as big as you’d like it to be, you’ll learn a lot about business financing through the application process.
When you can, take the time to speak with other local business owners and ask them about any grants they applied for. You can even connect with nonprofits and see if they have grants available for businesses designed to help those in need.
Places like the Small Business Innovation Research program, designed by the Small Business Association (SBA) will also let you know about upcoming grant application deadlines.
In some cases, you may even be able to secure federal funding in the form of grants. To make it happen, check out the Catalog of Federal Domestic Assistance (CDFA.)
As with contests (more on that in a minute) there are also business-specific and demographic-specific grants available. Do your research — especially on social media — to learn more about opportunities that might be available to you.
Remember that grant applications take time. If you know that you don’t have the time or the skill set needed to write a convincing application? Consider hiring a freelance grant writer to make it happen.
6. Enter the Right Contest
Another unique alternative to traditional business financing?
Be on the lookout for funding contests.
Even if you’re not able to raise all of your capital this way, you could still walk away with a seriously sizable chunk of change.
Check out social media and look for businesses that offer prize money for strong business proposals. Remember to look for contests that are aimed towards a specific demographic that you might fit into.
For example, if you’re a female entrepreneur, follow the socials of other women entrepreneurs. They’ll likely retweet funding opportunities and business contests for women-led businesses.
When you enter these contests, make sure that your entry has a strong emotional side to it. While you don’t need to reveal everything about your personal life, creating a sense of empathy in the judges is important.
Talk about why you started your business, and be sure to demonstrate a strong knowledge of your target market and even your competitors. Think of your entry as its own sort of business plan.
The more detailed and data-driven your entry, the more likely you’ll be picked as the winner. Plus, winning a contest means you’ll get lots of exposure — meaning slashing your ad budget is possible.
7. Pre-Sell Your Products
You know you’re creating something that will improve the lives of countless people — and bring your brand lots of profitability in the process.
But what you don’t have right now?
The right financing options to make it happen.
If you truly believe in the power of your product (and have a strong knowledge of what makes your market tick) then you have another way to raise funds. Now is the time to start thinking seriously about pre-selling your products.
This way, you can avoid over-ordering on raw materials and slash your advertising budget in the process. You’ll know the exact number of orders you have to fill — and those pre-orders will help you to get the money you need to bring them to life.
You’ll also be able to make a profit much faster than you would with other forms of lending. Though you’re not technically taking out a loan, it may help you to stick to a timeline if you look at it that way.
Remember, you’ve made a promise to deliver goods to your customers. It’s important to follow through as quickly as possible.
We love the idea of drawing up a few product prototypes and attending conventions to spread the word about what you have to offer. Even if you don’t have a warehouse full of your products just yet, prototypes let your target market see them in action.
This way, they’ll be much more likely to make that purchase.
Encourage your customers to upload images of them using your products to their social media pages as a form of free advertising, as well. Create the perfect hashtag and share these photos on your own page.
This way, you’ll always make sure you can have new orders coming in — without spending your profits on marketing.
Which of These Business Financing Options Will You Go With?
We hope that this post has helped you to feel like financing your next idea or business is possible.
For best results, we suggest that you try a combination of some of these business financing strategies.
Of course, you also need to ensure you can craft quality pitches, connect with other local businesses, and have a strong understanding of where your business is going in the future.
We can help you with that.
Keep checking back with us to learn more about loan options for your small business. Bookmark our resource center to ensure you never miss out on the top small business and startup advice.