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Getting Funding

Getting Funding: A Guide for Startups and Small Businesses

Getting funding can be a major hurdle for many startups and small businesses. Whether you need money to launch your company, expand operations, or take your business to the next level, figuring out the best funding options can be confusing. This guide breaks down the main funding sources available and offers tips for securing financing.

Bootstrapping

One of the most common ways entrepreneurs initially fund their business is by bootstrapping—relying on personal savings, credit cards, or income from a day job or side hustle. While bootstrapping has its limits, it allows you to retain full ownership and control of your company.Some tips for effective bootstrapping:

• Get creative and find ways to cut costs when possible. For example, work from home instead of leasing office space, or barter services with other businesses rather than paying full price
• Use personal credit cards responsibly if needed. Make sure you can pay off balances in full each month
• Consider driving for a rideshare service like Uber or Lyft for supplemental income
• Stick to a lean startup model focused only on must-have features and services

Friends and Family

Seeking financial support from friends and family members is another common funding avenue. While easier to obtain than traditional financing, tread carefully here—you don’t want to damage personal relationships if the business fails.When borrowing from friends/family:

• Be transparent about the risks involved
• Put loan terms in writing to avoid future conflicts
• Offer to pay interest, even if they say it’s not necessary
• View it as a loan to the business, not a personal handout

Crowdfunding

Crowdfunding platforms like Kickstarter and Indiegogo allow you to raise funds by pooling small investments from a large number of backers. This is an ideal approach if you have an exciting product idea or innovative service that will resonate with consumers.Tips for running a successful crowdfunding campaign:

• Create a compelling video “pitch” explaining your idea
• Offer interesting rewards for higher pledge amounts
• Market aggressively on social media to drive traffic
• Send follow-up surveys to backers after the campaign

Angel Investors

Angel investors are high net worth individuals who provide financing to startups in exchange for equity stakes and seats on the board. Check local networks like the Angel Capital Association to connect with angels who focus on certain industries or business models.Things angels look for include:

• An experienced management team
• A realistic valuation
• A clear path toward an exit (acquisition, IPO)

Having a strong business plan, financial projections, and pitch deck will help convince angels to invest.

Venture Capital

Venture capital firms raise pools of money from institutional investors to provide Series A or later stage financing for high-growth startups. This type of fundraising should generally be pursued only when you have a proven concept and need significant capital to scale.Before approaching VCs, make sure you:

• Have a prototype product and early traction
• Understand industry competitive dynamics
• Can clearly articulate your unfair advantage

Connecting with VCs through a warm introduction is best before sending any materials.

Bank Loans

While tricky for pre-revenue startups, small business bank loans are a possibility once your company generates steady cash flow, has physical assets for collateral, and a strong credit history.To improve your chances of loan approval:

• Get personal and business credit scores over 700
• Structure as an LLC or corporation rather than a sole proprietorship
• Put up assets like equipment, accounts receivable or real estate as collateral

Government-backed SBA loans are also worth exploring for qualifying businesses.

Non-Dilutive Grants

Government agencies, nonprofit groups, and other institutions have billions of dollars available via non-dilutive grants for startups and small businesses every year. Grants do not require giving up any ownership stake in your company or paying the money back.Types of grants include:

• SBA grants for women-owned, minority-owned and veteran-owned businesses
• State and local economic development grants for job creation
• Federal SBIR/STTR grants for science and tech startups
• Nonprofit and foundation grant programs for certain causes and industries

Securing grants takes significant effort given the competition, but can be well worth it.

Comparison Table of Funding Options

Tips for Securing Funding More Easily

• Bootstrap as much as possible initially – This shows investors you are committed and allows you to make progress cost-effectively
• Get your business plan and financials in order – Thorough, realistic projections make a big difference in the evaluation process
• Build relationships with investors before pitching – Warm introductions will help you stand out from the crowd
• Practice your pitch extensively – Refine and memorize your talking points; anticipate tough questions
• Highlight traction and milestones – Investors want to see evidence of progress and product-market fit

Additional Resources

Articles and Guides

• A Step-by-Step Guide To Getting Your First Round Funding
• The Complete 35-Step Guide For Entrepreneurs Starting A Business
• How To Build An Investor Pitch Deck For Your Startup