Top 8 Options of Startup Financing for Small Businesses

SNEHA HULL | July 23, 2021

Are you set with the business idea? So now is the real mammoth-sized challenge that is how to get startup finance? As the adage goes, "never put all your eggs in one basket," and this is especially true when it comes to startup financing options for your business. Entrepreneurs ought to understand the importance of diversifying financial sources and the available options. It is crucial to select the appropriate startup financing for small businesses.

According to a 2020 Federal Reserve report, new company small businesses are the primary source of job growth in the United States. Still, they are much more likely than larger firms to face financial difficulties in accessing borrowed capital.

Millions of Americans start their businesses each year. According to the Census Bureau, there would be over 4.3 million new business applications in 2020 alone.

It is vital to choose the suitable funding options as per your business requirements. Because every business's needs and circumstances are unique, no financial solution is one-size-fits-all.

Some choose to finance their startups with their years saved capital or get “love money” from family, spouse or friends, or any other funding options. How you choose to fund your business determines the structure and operation of your business. Hence, finding appropriate funding for startups is a bit tricky.

In this blog, explore few options of startup financing for small businesses and grow your business.


What is startup financing for small businesses?

Startup capital is a large sum of money raised to help with the financial needs of new businesses. Small business startup loan covers all the major company’s initial costs, such as purchasing equipment, working capital, machinery inventory, supplies, licenses, office space, furniture, product development, purchase of construction equipment or real estate.

Funding for startups can be provided by venture capitalists, angel investors, banks, or other financial institutions. It is pretty common that a new business might require more than one round of startup capital investment. In addition, many investors ask for a solid business plan in exchange for their money due to the risk involved in investing in the young company.


Advantages and disadvantages of startup financing for small businesses

Advantages:
• You will have enough money to start your own business.
• Personal wealth can be safeguarded.
• You have the option to retain ownership.
• You can establish business credit.

Disadvantages:
• It isn't easy to get startup business loans approved.
• High-interest rates.
• These loans may limit cash flow.
• Your personal credit may be jeopardized.
• You might not get all the money you asked for.


Where can I get a small business startup loan?

Small Business Credit Cards

Business credit cards are the most preferred option of startup financing for small businesses. As a result, small businesses are highly targeted by business credit card issuers providing them multiple offers, unique benefits, and applications.

Small business credit cards give small business owners easy access to a changing line of credit and a set of credit limits for making purchases and withdrawing cash. Business credit cards are safe, convenient, and a great alternative to startup business loans.

Applying for small business credit cards can be quickly done online or through banks. The criteria to qualify for a small business credit card depends on the business owner’s credit score and combined income (personal and business). Small business credit cards are convenient startup financing options.

Choose a credit card with a 0% APR to save money on interest. You will be able to pay off your debts in full each month once you start generating revenue. According to a recent Federal Reserve Small Business Credit Survey, 53% of small businesses use credit cards to help fund their operations.

The most significant advantage of a small business credit card is that you can access the funds immediately for short-term needs, potentially increasing your company's purchasing power.


Venture capital

Venture capital funding is a good choice of startup financing for small businesses. Venture capital is a type of equity and financing provided by investors to start-ups and small businesses with the potential for long-term growth. Venture capitalists are a type of investor who typically invests in a business against equity and holds a small portion of the company's ownership in exchange for capital.

When investing, venture capitalists consider a few criteria, such as specific industry sectors, company stage, and geography. In addition, venture capitalists frequently seek entrepreneurs with a robust business model that has the potential for higher returns.

Venture capital financing is difficult to obtain because, as a business owner, you must ensure that their focus matches your company's and its stage of development.

Venture capital is a time-consuming process that looks for more considerable opportunities that are stable, have a strong team, and have good traction. However, because venture capitalists provide a lot of mentorship and ownership, this may not be the best option for you if mentorship and compromising do not fit in your books.

Crowdfunding

Crowdfunding is a new trending option of startup financing for small businesses and has increased over the past few years due to its low risk for business owners. Crowdfunding is a way to raise startup capital through small contributions or investments from many individuals via crowdfunding websites or crowdfunding platforms.

To raise funds for startups through crowdfunding is not very difficult; it just requires setting up your company profile on the popular crowdfunding websites or crowdfunding platforms available. The profile needs to describe your company, its business, the products or services you deal in, and the amount of money you wish to raise.

Interested people can contribute to your campaign in exchange for a reward for their contribution. In addition, setting up a crowdfunding campaign gives exposure to your young company seeking money for the startup.

Crowdfunding for startups is accomplished by gathering donations from diverse people in exchange for a special reward. This incentive could take the form of free products, exclusive discounts, first access to new products, premium merchandise, the opportunity to join the team, or even becoming a significant capital investor.

Some of the popular crowdfunding platforms in the US include Kickstarter, Indiegogo, RocketHub, Onevest, SeedInvest, and many more. Each crowdfunding platform charges a fee to list your campaign, a flat fee or a percentage of the funds raised.

Because each crowdfunding platform is unique, make sure to read the fine print and fully understand your financial and legal obligations.


Love money from family and friends

Love money is nothing more than approaching your spouse, friends, and family for a loan to start your business. This is the most common type of financing option used by many companies, and it is one of the most essential sources of startup financing for small businesses at early-stage businesses.

Regardless of whether you have a personal and healthy relationship with your family and friends, never approach them solely for financial assistance. The mature move is to present them with a well-prepared business plan, financials, and other necessary documents. Then, request their valuable feedback on your business plan, as well as their advice based on their business experience, if any. This approach demonstrates your regard for their knowledge and expertise.

Despite all the benefits listed above, a business relationship with family or friends should not be taken lightly. Never assume that your close family or friends will lend you money. Do not take their financial assistance for granted.

Angel Investors

Angel investors are another excellent source of startup financing for small businesses. Unfortunately, many people believe that venture capital and angel investors are the same things, but this is not the case.

Venture capital is the companies that invest in your business. In contrast, angel investors are wealthy individuals or successful retired business executives who invest directly in small firms and take an equity stake in the new venture.

Angel investors are one of the few startup financing options sought out during the early stages of a new business's growth.

Along with funds, angel investors offer advice based on their experience, technical and management knowledge, and network of contacts. As a result, Angel investors frequently have a low profile and invest less than venture capitalists.

Personal loans for business

A personal loan for business may be worth considering for entrepreneurs with excellent personal credit and a new business idea worth putting your own money on the line for. The benefit of this option is that there are no hidden fees; it is simply a personal loan.

Personal loans have lower interest rates and easier repayment terms than business loans. This is an effective startup funding option because it can be used for almost any purpose.

The most significant disadvantage of a personal loan is that you are the sole accountable if your business fails and is responsible for the repayment of the outstanding balance. However, this can be a viable option as a startup financing for small businesses if you need a relatively small startup capital.


Small business administration (SBA) loans

The SBA does not lend directly to small businesses; instead, it offers various loan guarantee programs to qualifying banks, non-profit lenders, and credit unions. For example, some banks offer low-interest loans to small businesses that are backed and guaranteed by the Small Business Administration (SBA). They target underserved companies and make loans to start-ups.

The loan application process is time-consuming, with stringent requirements for qualified small businesses. As a result, the Small Business Administration (SBA) offers a few startup programs such as micro-loans and Community Advantage.


Equipment financing

Equipment financing is the top option if you need startup financing to purchase equipment and machinery. Because the equipment you will buy will serve as collateral for the loan, lending standards for equipment financing may be less stringent. However, if you do not return the money, the bank may seize your equipment to cover the cost of their lost money.

Dealerships, banks, and online equipment finance providers all offer equipment financing.

The main advantage of equipment financing is that you gain ownership of an asset, the payments for which are spread out over time, which is generally one to five years.

Frequently Asked Question:


What do you mean by startup funding?

Startup funding is money raised to help a new business meet its initial costs. To raise startup capital, entrepreneurs must create a compelling business plan to sell their concept to potential investors.


Where can I find startup financing?

Angel financing, crowdfunding, small business credit cards, venture capital, equipment financing are few popular options to find startup financing.


What are the types of funding?

Crowdfunding, venture capital, angel financing, small business administration loan, small business loans are few types of startup financing to businesses.

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BUSINESS STRATEGY

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Article | March 4, 2022

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SMALL BUSINESS TRENDS

Why Is Content Syndication for Small Business on the Rise Again?

Article | March 2, 2022

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Effective content syndication platforms enable B2B marketers to generate, moderate, and syndicate material with complete confidence, which leads to a higher conversion rate. Types of Syndication Outlets Exploring syndicating content across many platforms or networks is essential to maximize audience reach. Well-planned content syndication for small businesses may provide a slew of benefits. When seeking for third parties to syndicate your brand's content, there are a few options to pursue. Multi-author Publications Numerous multi-author publications accept syndicated material and republish entire or partial pieces, integrating your blog's RSS feed. For example, Social Media Today is popular business-related syndication sites. Blogging Platforms There are numerous blogging platforms that allow users to create their blogs on the platform or website. In addition, there are several blogging systems available, generally known as Content Management Systems (CMS), which serve as the home for your content. Blogging platforms are an excellent alternative for content syndication for small businesses because they have built-in audiences and allow you to control how much you post. Some of the most popular platforms are WordPress, Blogger.com, Tumblr, Typepad, and Drupal. However, according to blogging professionals, currently, WordPress is the most popular blogging platform available. Indeed, WordPress powers almost 50% of the world's top 100 blogs. Among these are several top-rated sites, like The Wall Street Journal and NLF.com. This syndication outlet is the most widely used content marketing strategy among small business owners. Social Networks Numerous social networking platforms allow you to publish content directly to their platforms. It's ideal for including links to your website to improve traffic. In addition, it's a means to post and promote your content across the most powerful social media platforms for your business. Instant Articles on Facebook and LinkedIn's Publishing Platform are two such platforms where you can syndicate your material. These are great options because you'll be able to use content discovery and analytics tools to optimize your pieces for social sharing. Social syndication delivers: Easy to consume Easy to share Enjoyed by thought leaders Always lead back to your offer The Building Blocks of an Effective Content Syndication Program While content syndication is seeing a resurgence, B2B marketers should exercise care before delving into this promotion channel. Content syndication is gained importance due to new capabilities and unfavorable circumstances. However, a few factors must be considered for establishing successful content syndication. Target the Right Persona (Executives) Although CEOs have considerable decision-making authority, they are not the main contenders for target content syndication. Therefore, targeting executives makes sense if you offer a content solution designed to benefit them. First, target personas who understand the challenges and appreciate the solutions you offer. The targeted personas will have an internal influence on others, which is more effective than approaching executives directly. However, you must first create your persona profiles. Right Content Assets Based on a Buyers' Journey It is critical to pick content assets based on an in-depth buyer's journey map, matching content with targeted personas and funnel stages. In addition, your content syndication efforts should be broken down by target accounts based on the research they conduct on certain topics. 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MARKETING AND NETWORKING

Successful Ways of Networking for Small Businesses

Article | February 28, 2022

Even if you have the most effective marketing strategy and the desired reach for your business, traditional word-of-mouth continues to be one of the most effective techniques for acquiring new customers. A successful small business requires a face-to-face networking strategy with other entrepreneurs. Over the years, small business networking has gained immense popularity among small business owners. Let’s not forget that every large corporation today was once a small enterprise. The expansion did not happen overnight. Networking is critical for small business success because no firm grows in isolation. "Networking is an investment in your business. It takes time and when done correctly can yield great results for years to come." - Diane Helbig, Business and Leadership Development Advisor Business networking may help you grow your customer base and get more referrals, as well as give you numerous chances for learning, development, and growth. Despite the undeniable value of networking, most small-business owners are at a loss about where to begin. You may be wondering how you might enter the world of networking. This article shows you how to use the best business networking ideas for your small business. Reasons to Grow Your Business with Networking Every businessperson understands the importance of investing in money, but only the wise invest in relationships. 95% of professionals believe that face-to-face contact is critical for long-term company success (HubSpot) Networking connects you with peers in your sector and opens the door to new opportunities. It shows you how important it is to have good interpersonal skills and how important face-to-face interactions are. Meeting with a venture capitalist can assist in securing funding. Finding a partner across the nation might result in the start of a new venture. In addition, small business networking may help by giving unique opportunities, growing confidence, expanding your community, and learning new skills. This is a perfect example of why businesses need to consider their networking strategy. Eloqua, a platform for marketing automation and intelligence, was acquired by Oracle in 2012 for $871 million. The entire transaction proceeded well because Eloqua co-founder Paul Teshima had developed strong, shared ties with Oracle's executives. Eloqua was acquired for more than 200% of its projected public market value, resulting in $400 million increase in a shareholders’ net worth. Small Business Networking Ideas “When you network you develop a list of resources that you can share with others. This increases your value to those prospects and clients you deal with.” - Diane Helbig, Business and Leadership Development Advisor Join Online Business Communities/Groups The most effective strategy to boost brand recognition for your firm and overall performance is to join business organizations and participate in "face-to-face" business networking groups. Numerous small business networking groups provide members with the opportunity to promote their businesses to the group or receive customized business advice. Some excellent small business networking groups you can join are the Chamber of Commerce, SCORE, the Entrepreneur's Organization, Business Networking International, Young Entrepreneurs' Council, Rotary Club International, and the American Marketing Association. However, being an active member of a lot of business organizations doesn’t have the same benefit as being a member of just one or two. Cross-promotion Cross-promotion is an excellent approach to building relationships with other small companies. Collaboration and cross-promotion are efficient strategies for growing your brand, acquiring new consumers, and diversifying the services you provide your clientele. Cross-promotion may take place in different forms, from pooling resources to sponsoring an event to bundling your items. You can collaborate on promotional videos and share them on each other's social media accounts. You can also develop a collaborative advertisement for publication in local retail journals and publications. Here is one perfect example that will help you understand better the benefits of cross-promotion. La'mariette and Selena Gomez collaborate on a campaign — La'mariette is a swimsuit company that believes that every body type is beautiful. They teamed up with Selena Gomez, singer and influencer with 195 million Instagram followers. Selena shared a photo of herself wearing a La'mariette swimsuit. She debuted the brand with this post. Additionally, she tagged La'mariette and shared their Instagram link. Selena's photo was then put on the brand's website. Cross-promotion brings a lot of benefits for small business owners with limited resources and budgets. Networking Business Cards Business cards play a crucial role in your small business networking strategy, whether you attend a small business conference, join a local networking event, or participate in a trade show as an exhibitor. Along with the necessary contact information, business cards may help strengthen your brand and make you more distinctive. Visiting/business card is the first and long-lasting impression, extension of smile or handshake, mark of professional. Additionally, owners are hesitant to discard business cards, probably because they understand that the cards need time and money to make. Business cards will help to build a strong customer relationship management (CRM) system. Attend Small Business Conferences Small business conferences are an excellent opportunity to network with other businesses and establish vital contacts. When you go to conferences, you get to reconnect with colleagues you haven't spoken to in a while. There are several ways to network at or during a conference. You can choose to stay at the same hotel as the conference, be prepared with conversation starters, be receptive to individuals who wish to meet you, and sign up for conference dinners, meet-ups, parties, and others. Connect With Other Local Businesses While being a member of the community helps small business owners in several ways, it also provides a chance to give back to the society. Just as you rely on the goodwill, referrals, and patronage of folks in your immediate circle, so do the other companies in your neighborhood. For example, a simple visit to say hello and leave your business card. This not only creates an opportunity to sell your products or services, but is also a neighborly thing to do. “Create a company culture that focuses on personal development, both inside and outside the workplace to influence your local community.” - Christian Valiulis, Automatic Payroll Systems Conclusion Business networking is a fun part of developing small businesses. However, as you implement the above networking strategy, pay attention to how it impacts everything around you. For maximum exposure, choose the best option from the suggestions mentioned above. FAQ: How can networking help a small business? Networking helps small businesses to find new customers, expand their business and provide exposure for their brand. Business networking helps build relationships with others. What are the advantages of networking? Below are a few advantages of networking Raise your profile Strengthen business connections Increased confidence Solutions to business problems Business opportunities Latest information How can I improve my business network? You can improve your business network by considering the following: Attend offline events Follow up Connect the connectors Get busy on social media Join online business communities/groups

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