10 Ways to Fund Your Business Idea

When you’re ready to execute on your big new idea for a new business, there’s one major hurdle you’ll encounter first: how to get that brilliant business plan off the ground and moving with the right funding to ensure it stays moving.

Whatever your idea is, even if it’s a nonprofit, you’re going to need money to turn your dream into a reality. This article is going to walk you through 10 ways to fund your business idea and get it off the ground. The 10 ways we’ll talk about are:

●   Bootstrapping

●   Friendly and Familial Loans

●   Business Credit Cards

●   Traditional Bank Loans

●   Government Loans and Grants

●   Investors and Venture Capitalists

●   Crowdfunding

●   Microlending

●   Online Lending

●   Incubators and Accelerators

●   Start Your Business Right

Bootstrapping

You may know the old adage, “to pull yourself up by your bootstraps.” Well, that’s where this term comes from. The use of bootstrapping to start a business means you don’t rely on any outside sources. You might tap your personal savings and resources to start your business. Or, you might rely on your business’ own revenue to fund it.

Of course, bootstrapping isn’t ideal for every business type. Some ideas will require more starting capital than others and we’ll discuss how to fund those ideas. But, even if bootstrapping alone isn’t enough, putting up your own money has its advantages. It allows you to retain some control over your business and shows others how seriously you believe in the idea.

Friendly and Familial Loans

If funding a business on your own isn’t feasible, reach out to the people you trust the most. Your friends and family can be a great resource for funding your idea. For starters, you probably won’t need to worry about interest rates (at least not very high ones). They’re also more likely to work with you if your business hits a rough patch. 

But keep a couple of important things in mind. One, you don’t want to take advantage of their trust, even by accident. Make sure you come to them with a solid business plan and a schedule for paying them back. You want to be professional and respectful, just like you would with any other investor.

Business Credit Cards

Keeping your personal and business expenses separate will save you a lot of headache down the road. Although you’ll need a good credit score, a business credit card has a few advantages. For starters, it will help you build strong credit. It also lets you control the amount you borrow. Some business credit cards also offer perks you can’t get from a traditional loan.

Just remember that credit cards accumulate interest if the full balance is paid off by a certain date. It’s normal for a business to carry some debt, just make sure you can manage it. You’ve also got to start out with a good credit score to get a business credit card.

Traditional Bank Loans

Brick and mortar banks are still the traditional source for business loans. You’ll need to provide more information than you would to your friends and family. Requirements will be similar to a business credit card, such as providing a business plan and submitting to a credit check.

There are so many different banks that terms and conditions are going to vary widely. You’ll have a choice of national and possibly local banks. Generally, interest rates will be lower from a bank loan than a credit card. But, you’re also typically going to borrow a fixed amount as opposed to the revolving line of a credit card.

Government Loans and Grants

Some loans are given out or backed by government institutions. Depending on where you live, they could come from the local, state, or national government. In the United States, the Small Business Administration (SBA) backs certain loans given out by private banks to make it easier for entrepreneurs to gain access to capital.

We’ve talked a lot about for profit business funding, but seed money is just as important for nonprofits. The SBA offers grants for community organizations. Other government entities give out grants as well. Having a clear source of funding can make that first nonprofit meeting a lot more productive.

Investors and Venture Capitalists

If you need a substantial amount of starting capital, there are plenty of professional investors to choose from. Venture capitalists and firms can provide you with more funding than other sources could. But keep in mind that it takes plenty of work to get their attention and they often want a large stake in your enterprise.

Angel investors are more likely to use their personal wealth to fund an idea. If your business is riskier than normal, an angel investor can be a great source of capital.

Investors like these typically want part of the equity in your business to get a return on their investment. This differs from other types of loans which generate debt to make money. Keep the difference in mind.

Crowdfunding

Traditional fundraising is well known in the nonprofit world. But the internet has greatly expanded the possibility for businesses of all types to raise money from the average consumer. There are several platforms to choose from, but Kickstarter and GoFundMe are two of the best known. Crowdfunding has the advantage of gaining upfront capital as well as generating interest in and pre-orders from your business.

Microlending

Another funding opportunity made possible by the internet is microlending. Rather than getting a loan from a bank, microlending allows businesses to get money from a group of individuals. They may have higher interest rates than traditional loans, but may also have lower credit requirements.

Some forms of microlending target businesses outside the First World, where credit can be hard to come by. Others may be available to low-income individuals. Kiva and Accion are two popular microlending sites.

Online Lending

By now, it should be clear that there are multiple ways to fund for profit and nonprofit businesses. Sticking to our current theme of funding options made possible by the internet, online lending offers another avenue. These lenders are often newer banks, sometimes without a physical location. They tend to offer simplified applications and allow easier access to capital.

Incubators and Accelerators

Incubators and accelerators can offer benefits beyond funding. The former helps you start your business from the ground up while the latter helps new businesses skip years of slow growth. Both can provide training, mentoring, and support. All of this can be invaluable.

Start Your Business Right

Each method for funding your business idea has its own advantages and drawbacks. Which one (or ones) you choose will depend on your exact business idea and situation. Just remember to seek guidance from people you trust and professionals who know your industry well. And remember, the more you can embody and showcase passion for your business or your cause, the more likely you are to secure strong business relationships now, and in the future.