Understanding how to get funds to start a business takes strategy
Whether you’re seeking funds to start a business or grow an existing one, there’s more than just money on the table – your dreams and passions are also on the line. You have a business idea that inspires you, and you need financing to make it a reality.
What’s critical to realize is that learning how to get funding for a business is a two-way street. You can’t acquire funds without a business map that’s attractive to investors and lenders, but you can’t create that map without a plan for obtaining funds. So how do you go about learning how to fund a business or grow your company once it’s off the ground? Understanding how to finance a business boils down to several key ingredients, including your vision, strategic planning and network connections. Once you understand how to get funding to start a business, you’re able to build a company that truly thrives.
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How to get funding for a business
Your strategy for obtaining business financing will hinge on where you are in your business cycle. If your business is still an idea in the making, you’ll need to research how to get funding to start a business. But if your business is in its infancy or adolescence, you’ll need to understand how to fund a business that’s already established.
Entrepreneurs are a courageous bunch. Financing a startup takes creativity and bravery, since your only collateral may be your business plan, reputation and personal outlays of cash. Do you want to know how to finance a business? You need seed money, which oftentimes comes in the form of donations by friends and family or loans backed by the Small Business Administration (SBA).
1. “Family-and-friends” investments
A 2008 study by the Global Entrepreneurship Monitor determined that donations by friends and family are vital to the small business world. The study found that startup founders’ family and friends contributed an average of more than $17,000 per startup! So when you’re working on how to get funding for a business, hold your network near and dear. In addition to contributing seed funds, your network is also a source of raving fan customers once you launch your business.
2. SBA-backed loans
When you’re strategizing around how to fund a business from scratch, you may be eligible for SBA-backed loans. Loans backed by the SBA are low-interest alternatives to higher-interest traditional loans available only to low-risk ventures.
While the SBA lending program was hit hard by the financial crisis of 2008, it is on the rebound now, having recovered by 80% in the first year alone after the financial meltdown. SBA loans are now a viable option for mastering how to get funding for a business venture.
How to fund a business that’s already established
Once your business is off the ground, you’re out of startup territory. But while learning how to get funding to start a business may seem like a gargantuan feat compared to financing an existing venture, you’re still not out of the woods. To keep your business running and profitable, you’ll need to understand how to get funding for a business that’s already established.
1. Venture capitalists
As an emerging business, you have traction on the ground – the ability to demonstrate to investors that your product has a ready-and-willing market. You’re now in a position to look to venture capitalists for how to fund a business. Venture capitalists make investments on nascent, promising businesses. Since venture capitalists take a high risk – they can’t fall back on collateral if your venture fails, since you haven’t yet generated equity – you’ll need to demonstrate a plan for higher-than-average profits to make their risk worthwhile.
2. Debt or equity financing
Learning how to get funding for a business that’s already up and running often entails the use of debt financing or equity financing. Financiers are attracted to lower-risk ventures with evidence of solvency, since those ventures are demonstrably able to pay off their debts. Maturing businesses may still need secured loans for capital improvements, but those businesses do have collateral in their own assets (as opposed to only having collateral in the business owner’s personal assets). As your business develops equity, that, too, becomes collateral that’s attractive to lenders, since there’s already money on the table for debt repayment.
3. Public stock options
As your business becomes more stable, you’re able to generate stock as an option for how to get funding for a business. By making an Initial Public Offering (IPO), you offer shares of your business to the public in the form of new stock issuances. By extending investment options to the public, you’re able to bring about gains for private investors while increasing your overall investment.
How to finance a business using your network
Whether you’re seeking financing for a startup business or a maturing company, your network is one of your greatest assets. Your peers, colleagues and mentors are a bedrock of support, collaboration and resources as you learn how to get funding for a business. Build your network with Tony Robbins’ Unleash the Power Within, a 3-day in-person event designed to help you reach your true potential while making lasting connections. This program is an excellent place to meet like-minded people and collaborate to get financing for your company.
How to get funding for a business in a weak economy
Starting a business venture is not something to take lightly – ideally, you’d time your decisions to coincide with favorable economic conditions. At the same time, you may find yourself in a position where starting your own venture is one of your only viable options, regardless of the economy. What are some strategies you can employ to learn how to get funding for a business in any economic climate?
Seek out public and private assistance
Supporting small businesses is a well-known strategy to help keep the overall economy afloat. Although borrowing money or relying on public assistance is probably not what’s commonly associated with living the dream of business ownership, it’s a viable and respectable strategy for building up your resources to ultimately get what you want in the end. There are public and private self-employment programs designed to help individuals learn how to fund a business despite a weak economy or even weak personal finances. Check with your state’s unemployment office to see what types of aid are available. Also seek out private courses and loans administered by nonprofits dedicated to enabling entrepreneurship. These will likely require (or help you prepare) a robust business plan to validate disbursing loan money. The process equips you with a strategy, greater self-confidence and an understanding of how to finance a business in any economy.
Leverage your assets
The concept of leveraging your assets may seem out of place when you’re learning how to get funding for a business that’s barely off the ground. The reality is that to master how to fund a business, you must be creative. Here are a few examples of how to finance a business using the resources you already have:
Are you a minority business?
Minority businesses may qualify for small loans and special assistance programs. Whether you’re in a racial or ethnic minority or a woman-owned company, it’s worth your while to research the resources available to you. To find business loan options, consider starting with the SBA’s online Lender Match program, which forwards the information you submit to interested lenders who then engage you directly in the loan application process. You may also be able to find minority business loans through your local bank, credit union or nonprofits whose missions support minority companies.
Obtain short-term financing
Depending on your situation, you may be eligible for short-term business financing. Look into getting a line of credit through your bank. As long as you remain in good standing, your line of credit remains available as a resource for how to fund a business. If your business has an established record of sales revenue, you may also qualify for payroll financing, a short-term loan designated for a variety of expenditures.