Funding is always a challenge for entrepreneurs and startups. Without an established track record, receiving financing from traditional lenders and investors can be daunting. This often leaves you with selling assets, borrowing against your home or maintaining a 9-5 job just to fund your dream.
Despite the risks involved, entrepreneurship is surging across the country as more people look to pursue their dream. To learn more about the rise of entrepreneurship across America, check out: Entrepreneurship Is Driving the U.S. Economy: Are You Building to Scale?
The good news is we live in an age of opportunity where technology has revolutionized how we conduct business. Technology has made entrepreneurship easier than ever before by reducing costs and providing a venue of free advertising and lead generation.
For startups, leveraging technology to the full extent possible is one of the best ways to bootstrap the business for quick growth without aid from lenders.
Assuming your business is on the fast-track to growth, there are options out there to help you tap into startup funding. Below, we consider a few broad categories.
The U.S. Small Business Administration (SBA) is usually the first thing that pops up when looking for startup financing. SBA loans do provide small businesses with access to funding, but it’s definitely no magic bullet.
As Entrepreneur.com rightly notes, “Despite what you might see on late-night infomercials or some websites, none of the SBA’s loan programs involve free money, government grants or no-interest loans.”
That being said, SBA loans do offer good options for small business owners in the process of ramping up their operations. If the SBA loan is for you, there are three options to choose from
- SBA Advantage Loans 7 (a): Arguably the most common type of SBA loan, 7 (a) is simply a guarantee from the government that can also help you mitigate risks associated with your new venture.
- 504 Loan Program: This program is designed to inject cash into regions struggling to prove their economic conditions. It is also used to help borrowers purchase long-term fixed assets, such as buildings.
- Microloans: Funding amounts less than $50,000 fall under the microloan category of the SBA. Microloans are great for working capital to purchase everyday items.
In the case of the above, businesses must still go through a traditional bank for an Advantage Loan. A traditional lender is also likely to be involved in the 504 Loan process. Microloans are issued by bank intermediaries, also known as an SBA preferred lender.
To learn more about SBA loans and whether they make sense for you, check out the following article..
Go to the Funding Source Directly
Another way to finance your startup is to go to the funding source directly. The Angel Capital Association directory has a large list of angel groups and accredited platforms that fund new ventures. However, the directory is probably limited, given that many angel investors prefer to stay anonymous while others are more informal.
In addition to angel investors, startup fund advisors help entrepreneurs find alternative avenues to raise capital. However, keep in mind that many of these boutique firms charge much higher fees, including a 5-7% success fee plus the same amount in warrants to enter the deal.
Another way to go to the funder directly is by starting a crowdfunding campaign, which is becoming more popular in the age of social media. A website like Kickstarter offers the world’s largest funding platform where people pool their money and resources to fund projects. Crowdfunding essentially pools multiple, smaller investments as opposed to a single source of financing like a bank loan.
In addition to crowdfunding, peer-to-peer lending programs can help you get over the initial financing hump. Peer-to-peer lending is a process whereby a group of people pools their money together to lend to each other. The P2P option is becoming more ubiquitous as social media expands.
Work with a financial services company
One of the best ways to unlock startup financing is to work with a financial services company that can introduce you to opportunities you didn’t even know existed. This includes financing options from the government, traditional banks and alternative lenders.
If jumping through the hoops isn’t an option for you, contact Red Door Capital to learn about how you can get your small business off the ground. We’ve helped all types of small businesses navigate the complex funding terrain. By understanding your needs, we help you uncover the best funding solutions available to you.
Review our Growth & Expansion services to learn more about how we can help you take your startup to the next level. While you’re at it, be sure to check out our solutions page for all your business financing needs.
Even if your business isn’t at the funding stage yet, don’t hesitate to contact us today. The earlier we’re involved, the sooner we can help you with your long-term financing needs.
Regardless of the path you choose, your business must demonstrate an ability to grow before being considered for external financing. Red Door has developed tons of content to help you get your business off the ground. Our Blog features regular updates on how to build a successful business before seeking financial aid. Once you are ready to scale up, Red Door Capital will be here to help.
George Deeb (September 19, 2014). “How To Find Angel Investors For Your Startup.” Forbes.
Ameen Khwaja. “The Basics of Startup Financing.” Entrepreneur.com.