How to Fund Your Small Business

Whether you’re launching a new business venture or your small business has been operating for some time, the truth is, “raising funding is always difficult,” says Tom Sagi, co-founder and CEO of Hourly.

But just because getting the funds you need to keep your small business moving forward is difficult doesn’t mean it’s impossible. Sometimes, it just requires getting a bit creative.

So what, exactly, does that creativity look like? We asked Sagi (and a few other small business owners) for their insights on how to raise funding for your small business. Here’s what they had to say...

Target the Right Business Lenders

One of the most common ways to raise funding for your small business is to take out a business loan or line of credit.

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If your small business is already profitable, you can definitely go after a loan or line of credit from a traditional lender, like a big bank. “Banks mostly want to see a positive cash flow and steady profits,” says Sagi. "They really look at the size of the business’s revenue—and agree to lend based on that revenue.”  

But if you’re just starting out (or your business isn’t at a high level of profitability), getting approved by a traditional lender may not be in the cards. But not to worry; just because you can’t get a business loan or line of credit from a traditional lender, doesn’t mean you won’t be able to get a loan or line of credit at all. You just need to target different lenders.

And the Small Business Administration—better known as the SBA—is a great place to start. 

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The SBA has a number of business loan and grant programs designed to help small business owners. Examples of some of the loans or grants you may qualify for through the SBA include:

• 7(a) loans, small business loans with significantly more competitive rates than traditional lenders
• Microloans, which provide loans of up to $50,000 to help business owners either start up or grow their businesses
• 504 loans, which give small business owners access to capital to cover the cost of specific assets (including real estate, land, or machinery)
• The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (SBTT) programs, which provide grants to small business owners in the scientific research and development sector

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The point is, the U.S. Small Business Administration has a number of programs in place to get funding into the hands of small business owners—and, if you’re looking to fund your small business, they’re definitely programs you’ll want to explore. (Just keep in mind that, when applying for a business loan, you’ll need to offer a personal guarantee.) 

Consider Leveraging Your Personal Credit

Whether through a traditional lender or the SBA, getting funding for an existing small business can be tough—but getting funding for a brand new business is even harder.

“For a brand new business, it's extremely hard to raise any funding or get any debt financing,” says Sagi.

If you find yourself unable to secure a loan or credit for your business, one option to consider is securing a personal loan or line of credit.

With a personal loan or line of credit, you can use the funds however you’d like—but instead of the burden of debt falling on your business, it falls on your shoulders. “You can give the money to the business and use it, but it's 100 percent your responsibility to repay the debt,” says Sagi. 

In order to get a personal loan or line of credit, your finances need to be in order. When determining whether you’re a qualified candidate, “they look primarily at your credit score and what your salary is,” says Sagi. They’ll also look at how much debt you’re carrying in comparison to your income—so, before you apply, make sure to go over your finances, review your credit report, and put yourself in the best position possible to be approved (for example, by paying off other credit card balances or correcting any mistakes in your credit report).

Applying for a new credit card could also be a way to cover costs for your new business. “If you don't mind paying higher interest rates to a credit card, they can be a great way to get some funding to launch your small business,” says Sagi,

Tap into Your Network

As a small business owner, you may not be able to catch the attention of sophisticated  nvestors, like VC firms. But there may be people a lot closer to home that’d be willing, able, and excited to invest in your business.

Tap into your network and see if there’s anyone that might want to invest in your business, whether that’s friends, family members, or colleagues. 

The key to success with tapping your personal network for funding? Set crystal clear expectations. What are the terms of the investment? How and when will you pay them back? And, most importantly, what happens if you invest their money into your business—and then, for whatever reason, the business doesn’t succeed?

“Everybody wants their business to be super successful, but keep in mind that there is a chance that the business will not survive,” says Sagi. “You may not be able to pay that money back. I know it sounds gloomy, but that’s the reality.”

As long as everyone is on the same page, your friends, family, and personal network can be a great way to fund your business—so, if you’re going to explore this option, just make sure to get on the same page and set clear expectations from the get-go.

Small Business Owners Share Their Creative Funding Ideas

Want some more creative ideas for funding your small business? Here are a few additional tips and strategies from more small business owners:

• Join a funding contest. There are a ton of business-related contests out there, from pitch contests to competitions, that support businesses doing good in their community. “Joining contests with monetary rewards is one way that small businesses can get funding for their operations and take their business to the next level,” says Brogan Renshaw, owner of Modelers Central, an e-commerce business that specializes in model ships, trains, and other modeling kits. “It’s not a typical financing idea, but you will be surprised with the potential there is to get funding from generous organizations.”
• Offer a presale to customers. If you’re just getting your product off the ground—but you already have a pool of interested customers—a presale can be a strategy to raise capital. “Offering your product or service before opening is a great way to fund your business and validate your idea on the market,” says Rebeca Sena, co-founder of GetSpace.digital, a digital marketing agency that specializes in working with architects and designers. Just make sure if you move forward with a presale, you’re clear with your customers on the state of your product. “At first, it may sound like a misleading idea, but you need to be transparent with your customers and ensure they understand the premises of a presale—meaning that the product doesn’t exist yet,” says Sena. “Update them regularly about the development process and ask for feedback to improve the final result.”
• Form bartering relationships. Depending on what you plan to spend your funding on, you may not actually need cash to move your small business forward. Forming bartering relationships—where you offer your product or service to another business owner in exchange for another product or service you need—can be a creative way to get what you need. “Friendly exchanges of expertise can…be invaluable,” says Wesley Jacobs of travel-based medical company Apollo Medical Travel. “For example, if you own a studio that offers classes and experiences, you can trade free classes for marketing help from a friend. Be creative; if you don't have cash, try exchanging value in another form!”

Use These Tips to Get the Funding You Need

Funding a small business can be challenging—especially if you don’t know where to start. But with these tips, you have a great starting point to find the funding you need to take your business to the next level. So what are you waiting for? Get out there and find that funding!