Raising money for your small business is the most important activity you’ll engage in as an entrepreneur, but it’s not easy. Here are a few ideas.
Starting your new small business will require an initial contribution. This contribution can cover any legal filing fees or purchase assets – such as inventory, office equipment or other assets specific to your industry.
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Bootstrapping Your Small Business
You can come up with your initial investment personally. This is called “bootstrapping” because you’re pulling yourself up by your own bootstraps. You can withdraw funds from your saving account, sell personal assets or use a credit card. If you own a home, you can also borrow against the equity in your property.
Raising Money from Family and Friends
You can also acquire funding from friends and family. Many entrepreneurs shy away from this method of raising money because they don’t want to complicate their relationships. However, friends and family are often more willing to lend money than other sources. Just make sure you are clear upfront what the terms of the loan are.
Taking Out a Loan
Entrepreneurs often turn to financial institutions for loans. If you have a solid business plan and good credit, this can be a fantastic option. The Small Business Administration (SBA) can also help you secure funding through loans.
One benefit that comes from taking out a loan is you can claim the interest you pay to the lender as a business deduction on your taxes.
Seeking Venture Capital Funds
Another way to fund your business is to reach out to venture capital firms. These firms make direct investments in up-and-coming companies in exchange for equity in the business. Venture capital firms are generally very selective and usually invest only in businesses that are already established and have shown the ability to generate profits.
Crowdfunding Your Small Business
Crowdfunding websites also provide a platform for small business to reach out to the general public for financial help. These websites sometimes keep the funds into an escrow account until a specific goal is met, otherwise the funds are returned to the investors. They also keep a percentage of the funds raised as their service fee.
Raising money for your small business is going to take some thought and effort, but you can do it. You may have to investigate multiple sources of funding, but don’t get discouraged if the first option doesn’t work.
