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Don’t let the street talk about how impossible it is to find money to launch your startup put you to sleep. There’s no doubt; it’s more challenging. Traditional lenders like to see a track record. When you’re a startup, you don’t have one. But you do have a rock-solid dream ready to become a reality.
The truth is, there is startup money, even from banks. Here are six places to get you started.
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Banks
Banks are in the lending business. Loans and the interest they earn generates revenue. But, this doesn’t mean the door is closed to entrepreneurs. You need to prove you can pay back the loan. It helps if you have an existing relationship with the bank. Startups in the retail or food industry might have a more challenging time, as bank lenders believe there is more risk in these sectors.
The way to get money to launch your startup from a bank is to present an organized and thorough business plan backed up by realistic financials. Include a convincing argument about why your product or service is needed. Present your strategy for how you will compete in the marketplace and overcome disruptions in the economy.
If you have some skin to put into your startup, you’ll improve your chances of being approved for a bank loan. A cash investment from you, friends, or family members shows that you are committed to your startup’s success.
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Small Business Administration
The SBA 7(a) small business loan program offers government-guaranteed financing from $25,000 to $5.5 million to cover startup costs, operating capital, and other expenses. SBA loan terms are much more affordable than banks or other lenders. However, it is a government agency, there’s a lot of paperwork, and the process of reviewing your application takes time. Loans up to $25,000 do not require collateral. As a startup, you might prefer to apply for a microloan, but you could qualify for an SBA 7(a) loan if you can present strong financials.
The Small Business Investment Company (SBIC) is another place to find money to launch your startup. SBA regulates the SBIC, but it is privately owned and managed. SBIC lends money and makes equity investments in small businesses.
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NonProfit Microlenders Have Money to Launch Your Startup
There are several nonprofit organizations whose mission is to support the development of small businesses. They provide microloans to cover startup costs and operating expenses, including rent, equipment, and utilities. Because nonprofit microlenders are mission-focused, they’re more comfortable taking a risk.
Most microloans max out at $50,000, sufficient to start up your business. The terms are affordable, making the loan easy to repay. Microlenders also offer to mentor you so that you can successfully access traditional financing in the future.
Here are some examples:
SBA Microloans. You can borrow up to $50,000 and use the money to cover the costs of machinery or equipment, furniture, and fixtures, working capital, and inventory and supplies. SBA community-based partners process the loans.
Grameen America. The founders launched Grameen America in 2008 to support women entrepreneurs. Microloans are available from $2,000 to $15,000.
Opportunity Fund. Founded in 1994, Opportunity Fund’s mission is to support entrepreneurs in low-income communities. Its founders were motivated by the sheer number of small business loans rejected every day. Opportunity Fund is ready to help you with money for your startup. They want to see a strong business plan and a commitment to succeed. Loans are available from $2,600 to $250,000. You can use the money for working capital, payroll, equipment, inventory, acquiring a franchise, and other expenses. There’s a special focus on the sectors banks reject, such as restaurants, elder care, and retail.
SBA Community Advantage Program. The SBA sponsors community Advantage. It provides startup loans up to a maximum of $250,000. The focus is on underserved communities.
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Grants
Grants are not loans; you don’t have to pay them back. A small business grant is a great way to get money to launch your startup, especially when your cash flow is not ready to handle debt. There is less flexibility, though. For instance, you can use loan funds to cover a wide range of operating expenses. When you apply for a grant, you’ll need to state specifically how it will be used, and you must spend the money exactly as stated in your application. Grant-making organizations exercise more oversight, and you may need to provide routine reports. The best resource for the most current information on grants is GrantWatch.com.
Many small business grants cater to specific sectors or entrepreneurs, such as women or minority-owned startups. 37 Angels, for instance, provides seed capital grants up to $150,000 to women entrepreneurs. A great resource is GrantsforWomen.org, a database of grant opportunities for women-owned startups.
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Angel Investors Provide Money to Launch Your Startup
Equity financing is a popular way to fund small business growth. But, equity funders like to see a track record and strong financials. You’ll be more successful in seeking out angel investors. The amount provided is much smaller, between $25,000 to $100,000, but this is enough to launch your dream and get the doors open. Like equity financing, Angel investors require shares in your company. You’ll lose some control over your business, but there is always the option to buy back the shares once your finances are healthier. To get started, visit the Angel Capital Association website. Be sure to follow this blog for future articles about angel funding.
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Raise Money for Your Startup by Crowdfunding
Crowdfunding platforms have become a popular way to raise money for everything, including launching your startup. These platforms can be an impactful first step to secure money for your startup when you’re not ready for angel investors or small business lenders. You share your startup’s mission on a crowdfunding platform and solicit funding in exchange for shares or rewards.
The most reliable crowdfunding platforms include:
- Kickstarter (for creators)
- Indiegogo
- CircleUp
- iFundWomen
Bottom Line
- There is money to launch your startup.
- If you have a relationship with your bank, start there.
- Before approaching any funder, prepare a professional business plan. Be prepared to advocate for your new business. Explain how you intend to become successful.
- Be creative. Think outside the box or get rid of the box altogether.
*featured photo credit to Javier Reyes on Unsplash