Big ideas, little money: 7 ways you can fund your small business

Setting their big ideas into motion is every entrepreneur’s dream come true, but there is one thing that scares them more than having to work for months on putting together a business plan – coming up with the funds to set their ideas into motion.

Fortunately, obtaining funding nowadays is not as difficult as it was a few decades ago when an entrepreneur’s only option was to go to the bank and hope their business model looks reliable enough to obtain a loan. Now, small business owners have a plethora of funding options to choose from, and there is a high chance at least one will be successful. If you are looking to open a small business, but don’t know how to fund it, try one of the options below. 

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Government loans

Many government-sponsored organizations are working to help entrepreneurs develop their ideas. Oftentimes, besides assistance, they also provide financial support. In the U.S., for example, there is the Small Business Administration offers several of these small business loans. They have a microloan program, where entrepreneurs can get up to $50,000 to fund their business.

Canadian entrepreneurs also have this option, provided by the Canada Small Business Financing Program. This governmental organization can give out loans for as much as $1 million. Canadians can also get microloans, provided by organizations focused on economic development. They usually activate in a designated territory, such as the Community Futures Development in Ontario, or the Community Business Development in rural Atlantic Canada.

Besides that, governments often sponsor business start-up programs, which provide not only financial aid, but also mentoring and consultation for those who qualify, to set their business into motion. 

Bank loans

Oftentimes, entrepreneurs looking to start a small business fear to go to the bank to ask for a loan. This is because the process is nowhere near easy, and not many small businesses qualify for a loan. Banks are often reluctant to give loans to beginner entrepreneurs, especially those opening a small business, fearing they might not be reliable enough. Those who do receive funding, if they have no previous entrepreneurial experience, usually have to pay quite high interest rates.

Most of the time, such things happen because business loans are not granted based on the nature or status of the business, but rather on the entrepreneur’s personal financial status. This means that if you don’t have a perfect credit score, you run a high risk of not getting a loan at all. 

Alternative lenders 

Luckily enough, traditional loans are not the only option entrepreneurs have. Alternative lenders have become quite a popular option for those looking to see their big dream come true. Such companies provide loans for business purposes, similar to what banks do, but with smaller interest rates, more relaxed requirements and shorter periods of time.

Alternative financial companies usually provide loans for 12 to 60 months, and if you have a good credit history, there is an almost 100% chance you will be granted the money. These solutions are good for entrepreneurs who previously worked as freelancers, which banks usually decline because they can not provide proof of a fixed income.  

Venture capitalists

The way venture capital (VC) firms work, is that they make direct investments in companies, and receive equity stakes in exchange. This is why VC companies pay very close attention to who they give out money to since it’s their company’s money they are giving away. Usually, you need to come up with a killer idea and solid proof that your business is bound to make money from day one, otherwise, your request may be declined. 

Usually, VC firms only give loans over $250,000 and are looking for companies that have a high potential for rapid growth. Oftentimes, they are looking to cash out their equity stake as soon as the company can stand on its own. 

Angel investors

Angel investors are similar to venture capital firms, in the sense that they fund companies in exchange for equity. Sometimes, angel investors can be even harder to please than VC firms, meaning they will only invest in the crème-de-la-crème of startups. 

Angel investors are usually people that have been successful in a certain industry and are searching for opportunities to invest in the same field. Some investors do prefer to keep a low profile, while others are willing to go one step further and use their influence and experience to provide guidance or networking opportunities to entrepreneurs. 

Friends and family

Going to your parents or friends to ask for a loan is not the most comfortable thing to do, but it is one of the most popular alternatives out there. Think of it this way: instead of making bans or third parties rich, why not do so with those close to you? Plus, you have room to negotiate loan terms much better than with a bank.

Before you start pitching your idea to everyone you know, do make sure you understand what this implies. Sometimes, close relationships can be affected by money issues, so make sure both you and the person lending you money are on the same terms and will keep their part of the deal, to avoid burning your bridges. Make sure you have a good business plan, be transparent to those lending you money, and only choose this option if you are certain your company has a high chance of being successful. 

Crowdfunding

This has become a very popular choice for entrepreneurs, thanks to many fin-tech platforms that allow them to pitch their ideas and ask for funds. One of the greatest advantages of crowdfunding is that you don’t necessarily need to give lenders their money back. You can pay them back in gifts, such as products or services, or equity ownership. 

The only thing you need to keep in mind is that, if you decide to give out stakes in your company, you will end up not being the only owner, so make sure to not give up too much of your company to others. 

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