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September 12, 2022 Thousands of Americans dream of starting a small business. Between 2019 and 2020 alone, some 1 million small businesses opened in the United States, according to data from the Small Business Administration (SBA). There’s one common factor all these businesses needed to start up: money. Raising enough funds is critical for getting a small business off the ground and paving the way for longevity and future success. In this article, we’ll cover the following way to get money to start a small business:
1. SavingsMost start-up founders use their personal savings to fund their businesses, according to the Gallup Small Business Index. That said, you shouldn't drain your bank account to raise funds for your business. Entrepreneurs should set aside enough living expenses (for rent and groceries, for example) to last them for a year. Why? Because many startups aren’t profitable for months after opening. Smaller, service-based businesses can probably get away with 3 to 6 months of working capital to cover operating expenses. There are a number of ways you can begin saving to start your small business, including:
2. Personal LoansThis tactic involves borrowing money from family and friends. To avoid hurt feelings, put the terms of the personal loan in writing. Be clear about how much you need, what the interest rate is and when it’ll be repaid. 3. Credit CardsYou can either use your personal credit card or open a business credit card. Even if this option is open to you, don’t choose it lightly. Credit cards often have high interest rates that increase your balance monthly. You could end up with a debt balance that is much higher than you planned for, which could cripple your new business. Still confident that credit cards are the best route for you? Make sure you’re using a card with the lowest interest rate possible and excellent repayment terms. Research Credit.com to find the right card for your business. 4. Bank LoansUnfortunately, a small business bank loan is not guaranteed. Banks want airtight business plans and excellent credit scores before they’ll consider approving a small business loan. They may also want you to invest your own money in the business to prove you’re really committed to making your company work. You can go with your personal bank since they’ll already be familiar with your banking history. Or choose a bank that’s historically known for lending to small businesses. To improve your chances of getting a loan, choose an SBA-guaranteed lender. (Read more about SBA loan requirements.) Business Loan CalculatorEstimate how much your small business loan could cost you, using this business loan calculator. 5. Venture Capital and Angel InvestorsVenture capital and angel investing are best suited to high-growth companies or companies that are already profitable with good cash flow. Still, each investor has his or her own specialty in terms of region, industry, and company age. You’ll need a unique idea and a solid business plan to attract their investment. The SBA can help match you to potential private investors through their SBIC program. Investments are typically made over a 3-year period. SBIC investments come in 3 forms:
6. Government ProgramsGovernment grants can require some research to find the right one for you. The SBA has offices, called Small Business Development Centers, all over the United States that can coach you on available grants, plus provide business consulting and training. Grants.gov also has information on more than 1,000 federal grant programs. Some small business grants are available to entrepreneurs facing unique barriers. For example:
7. Corporate ProgramsSelect corporations offer programs that support small businesses, including low-interest financing. For example, Goldman Sachs has a program that gives affordable loans to businesses that might not qualify at traditional credit sources. 8. Crowdfunding and CrowdlendingCrowdfunding usually involves asking large groups of people for funds on dedicated crowdfunding websites. They usually receive a gift or the product you’re developing in return for their investment. Crowdlending functions much the same way except that your funders expect you to pay them back. Here are some options:
People also ask:
How Can I Start My Own Business With No Money?To start a business with no money or very little startup costs, consider these options: Service-Based BusinessStarting a service-based business that’s run primarily over the internet is cheap to start up. Creative services like graphic design, software or app development, or copywriting just require a computer and are essentially free to start up. Other ideas include photography, fitness coaching, and house cleaning, though you’ll need equipment. Drop-ShippingThis hot business idea means that you sell products that are made, stored, and shipped by a third party such as Alibaba. You can set up your own low-cost online store using sites like Shopify. You then curate the products sold and focus on marketing and excellent customer service to make your shop stand out. Print-On-DemandYou use products from third parties and customize them with unique slogans or art. T-shirts, mugs, tote bags, cell phone cases, and hats are just some of the items you can customize. Not a designer? Hire one on sites like Fiverr. Self-PublishingIt’s simple and free to publish your own eBook or print book using services like Amazon and Draft2Digital. You can hire people to format your book or design covers using sites like 99designs and even hire ghostwriters on Freelancer.com. Digital ProductsDesign courses or templates or produce music or graphics that can be downloaded. You can sell digital products on Shopify, as well. How Much Does It Cost to Start a Business?Many factors contribute to how much it will cost to get your business off the ground. The amount of money you will need depends on the type of business, the equipment required, office space needed, cost of utilities in your area, team members you employ, the amount of market research and marketing you do, and so on. It could cost as little as $3,000 to start a small, home-based freelance business, or more than $100,000 for a more complex business. The SBA has a startup costs calculator to help you estimate your personal startup costs. How Do I Qualify for a Business Loan?To qualify for a business loan, Forbes recommends a small business owner needs:
How Can I Get a Small Business Loan Without Collateral?Loans backed by the SBA typically don’t need collateral (i.e. property or assets like cash). The SBA guarantees these loans instead so even startups can access funding. Use this SBA tool to find lenders for your specific business. RELATED ARTICLES How can I start a business with no money?How to start a business with no money. Find a free business idea.. Write a business plan.. Choose a business name.. Launch a website.. Validate ideas with preorders.. Source funding to grow.. What is the best way to get money for a small business?Determine how much funding you'll need.. Fund your business yourself with self-funding.. Get venture capital from investors.. Use crowdfunding to fund your business.. Get a small business loan.. Use Lender Match to find lenders who offer SBA-guaranteed loans.. SBA investment programs.. |