Proven Methods for Funding Your Small Business

August 21, 2022

As a small business owner, you know that funding is critical to your success. But what are the best ways to fund your small business? There are many different options available, and it can be difficult to decide which one is right for you. In this article, we will discuss several of the proven methods for funding your small business. We will provide information on each method to give you options to consider when starting or growing your business.

EQUITY – equity is when a business owner sells a portion of their ownership stake in the company to an investor in exchange for funding. This is often done with the help of a broker or investment firm.

  1. Angel Investors: An angel investor is an individual who provides funding for a small business in exchange for equity in the company. Angel investors typically have more experience in the business than the average person, so they can be a great resource for Funding your small business.
  2. Venture Capital: Venture capital is funding that is provided by investors in exchange for an ownership stake in your company. Venture capital is typically only available to businesses that have high growth potential.
  3. “Sweat Equity”: “Sweat equity” is when an advisor or employee exchanges time and expertise for equity in the company. While this isn’t direct inbound cash to fund your business it can give you the ability to operate without an outbound flow of cash. This can be a great way to get operate for your small business if bootstrapping.

GRANTS – grants are funding that is given by a government or other organization to a business, usually with the intention of promoting economic development or supporting specific goals.

  1. Government Grants: There are many government grants available for small businesses. These grants can be used for a variety of purposes, such as funding your business start-up costs, expanding your business, or conducting research and development.
  2. Grants from Non-Profit Organizations: There are also many grants available from non-profit organizations. These organizations often have specific goals that they want to support, such as promoting entrepreneurship or helping small businesses in underserved communities.

CROWDFUNDING – crowdfunding is a type of funding in which businesses or individuals raise money from a large number of people, usually through the internet.

  1. Crowdfunding: Crowdfunding has become increasingly popular in recent years. On sites like Kickstarter or Indiegogo you create a campaign and set up a page for your business or project to accept financial backing from those who contribute to your initiative. Typically an exchange for being first in line with your new product and a special price.

DEBT – debt funding is when a business borrows money from a lender, such as a bank, and agrees to repay the loan over time, with interest. This is one of the most common types of funding for small businesses.

  1. Lines of Credit: A line of credit is a type of funding that allows you to borrow money up to a certain limit. You can use a line of credit to fund your business start-up costs, expand your business, or cover your operating expenses.
  2. SBA Loans: The Small Business Administration (SBA) offers a variety of loan programs to help small businesses get the funding they need. SBA loans are backed by the US government, so they offer low-interest rates and long repayment terms.
  3. Microloans: Microloans are small loans, typically under $50,000, that are designed for small businesses. Microloans typically have lower interest rates than other types of business loans, so they can be a good option for funding your small business.
  4. Personal Loans: If you have good credit, you may be able to get a personal loan from a bank or credit union. Personal loans typically have lower interest rates than business loans, so they can be a good option for funding your small business.
  5. Business Credit Cards: Business credit cards can be a great way to fund your small business expenses. Many business credit cards offer 0% interest on purchases for a certain period of time, which can help you save money on Funding your business.
  6. Equipment Financing: If you need to purchase equipment for your business, you may be able to finance it through an equipment loan. Equipment loans typically have lower interest rates than other types of business loans, so they can be a good option for Funding your small business.
  7. Accounts Receivable Financing: Accounts receivable financing is a type of funding that allows you to borrow money against your outstanding invoices. This can be a good option if you have customers who take a long time to pay their invoices.
  8. Merchant Cash Advance: A merchant cash advance is a type of funding that allows you to borrow money against your future sales. This can be a good option if you have a lot of credit card sales but need Funding now.
  9. Invoice Financing: Invoice financing is a type of funding that allows you to borrow money against your outstanding invoices. This can be a good option if you have customers who take a long time to pay their invoices.
  10. Purchase Order Financing: Purchase order financing is a type of funding that allows you to borrow money to pay for your inventory. This can be a good option if you have customers who place large orders but take a long time to pay for them.

YOUR NETWORK

  1. Family and Friends: Funding from family and friends is often one of the first places small business owners look for funding. This can take the form of equity, debt, or even given without expectation of any return. While this can be a great option, it is important to remember that you are asking people you know for money, so be sure to treat them with respect and keep them updated on your progress.

While there are a number of other options available to you to fund your business the above list is a good start. Before you move forward with any of these options have a clear understanding of the amount of funding you actually need, consult a professional advisor, and understand your responsibilities.

At Oper Hand, we consider adding small businesses to our portfolio through our angel and microloan programs. Reach out to learn more.

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