There are two ways to get the money you need for your business – the right way and the wrong way.
First, the wrong way: My friend Jeff had read a lot about crowdfunding and decided that was how he would fund his new food cart business. He heard people give you money if you throw up a video on Kickstarter.
So he did. But they didn’t.
The right way: After licking his chops (so to speak), Jeff decided to learn everything he could about starting a business. A year later he had saved some money, had a solid business plan, and found a great business partner. This time, Kickstarter was only one part of his funding plan, and as such, it worked. As did his plan to get a bank loan, and also get some investors.
In the end, he raised the $100,000 he needed.
There are two morals of the story: The first is that you need to do your homework if you want to get your business funded. The second, you need to cast a wide net. Today I want to concentrate on that second lesson.
The good news is that there are indeed a lot of ways to get the money you need these days. Here are a few of our favorites:
SBA loans: The Small Business Administration does not make loans but it does guarantee them. As such, getting an SBA-backed loan can be easier for entrepreneurs because they are, in fact, guaranteed. Find out more and get a list of SBA lenders, here.
Related Content: Understanding SBA Loans: What To Know Before Applying
Crowdfunding: Crowdfunding is a recent addition to the business funding toolkit. With crowdfunding, yes, you post a video on a site like Kickstarter or IndieGoGo, and then you give people rewards for investing in your dream. The beauty of this is that these funding pledges do not need to be repaid. They are not loans, they are investments made in exchange for the “reward.” In Jeff’s case for instance, the second time around he named sandwiches after his investors.
I have coached many people through successful crowdfunding campaigns and would say the keys to success are:
- A great page.
- A solid reward system: The more people pledge, the better the reward. Here is an example.
- A great idea: People will invest in your dream only if it is realistic. Again, here is what Kickstarter suggests.
Microloans: A typical bank loan might be for $5,000 up to a million or more. But some people don’t have the credit to get those bigger loans. Others have smaller needs. Enter microloans. Institutions like Kiva and the Small Business Administration offer such smaller loans.
Also check out Community Development Financial Institutions, CDFIs. These local non-profits also make small microloans (some as small as $500.) Our friends at Bank of America are significant funders of CDFIs. You can learn more, here.
Retirement accounts: No, I am not telling you to raid your retirement savings to fund your business, but there is a nifty trick you can use:
The IRS allows you to take an interest-free loan from your retirement accounts for up to 60 days, penalty free.
Factoring: If your business has money owed to it – accounts receivable for example – you can sell that down-the-road income for money today to a company called a factor.
Seller financing: Maybe you want to buy a business but don’t have the capital or credit necessary to do so. What to do? Look for a “motivated seller.” A business owner who needs to sell his or her business, for whatever reason, might be willing to act as the bank and help finance your purchase.
Related Content: How to Buy a Business in Three Steps
Supplier financing: I love the book, “Starting on a Shoestring” by Arnold Goldstein. In it, Goldstein shares how he started “Discount City” by having his suppliers supply almost all his inventory on consignment – to the tune of $120,000 in product. Goldstein started the business with only $2,600 out of pocket.
Want to know more? All of these ideas, and more, are discussed in more detail in my book, The Small Business Bible.
Related Content: Credit & Lending Resource Center
Steven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business Success.© Steven D. Strauss.
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