How to Fund a New Business

How to Fund a Business. A businesswoman holds a pink piggy bank toward the camera - a banking and financial savings concept. Business Investment or Savings

The Old Adage

The old adage “you’ve got to spend money to make money” has never made much sense to me on its surface, because how can you spend what you don’t yet have when you are are looking to fund a business?

It’s precisely that necessity that can make starting a new business feel totally ominous and nearly impossible. You want to start a business, at least in part, to earn money. You need resources, however, and those cost money; not to mention the fact that you probably need staff, and permits/licenses, merchandise if you’re going retail, et cetera. Some people are able to do this because they have savings, investment returns, or trust funds. For the rest of you, I’ve researched some of the best advice on how to support a new business.

Your Own Financial Standing When Funding a Business

First and foremost, you should be acutely aware of your own financial standing, as should anyone you’re going into business with. Even if you know that you don’t have the funds to make your dream business a reality, if you’re going to contribute to investments, apply for a loan, or anything like that, you should know what you do and do not have in the way of finances. Knowing what you may have to offer as collateral is also a good idea. In a similar vein to that, make a list of people close to you, friends, family, acquaintances who could be potential investors or co-founders, or who could contribute in any way to building your brand new business.

Relying on Loved Ones

You may not want to rely on friends and family for personal loans. Or, you may not want to risk your relationship by asking friends or family to invest in a potentially risky venture. But, if you have aligned yourself with people around you, you may be able to rely on them for all kinds of support. You’re definitely going to need a support system throughout this process. Inevitably, you will be doing a lot of work yourself for not much immediate return. People who love you may be willing to contribute to that workload even if they can’t make a financial contribution. This could save you from having to pay strangers when your business has yet to start making money. I’m not saying take advantage of your loved-ones; but, they’re an easy place to start, for most people, when it comes to asking for financial or other contributions to a new business.

Perhaps even before you start talking to family or friends about various types of support for your new business venture, you should have a detailed plan or at least a solid outline of a plan for what your business will be, do, and how it will be able to return on potential investments. Any investor you talk to, any bank lender, and any smart friend or family member, is going to want to know that they are making a smart decision with minimal risk when they agree to help you out. Having a vision and a strategy for fulfilling that vision is a solid way to instill trust and ease the potential uncertainty investors will have. It’ll also help you because you need to know exactly what you want your business to be to know exactly how much money you’re going to need to make it happen.

The Most Reliable Way to Fund a Business

All that being said, most experts agree that the most reliable way to fund a new business is to do so yourself with your own money. According to Entrepreneur, starting a new business is at an all-time low as far as initial costs, which means it might not take you all that long to save the money to do so, especially if you’re diligent and goal-oriented about it.

Even if you don’t have all the money you need to start the business, it is a good idea to have some amount to contribute, unless you have an enthusiastic and reliable financial backer already in place. Devoting yourself is a solid way to encourage friends and family members to invest because they know that you have faith in what you’re trying to do.

If you can get some friends and family members to invest, you’ll have a much easier time getting other, professional investors to do so. They like to see that people already have faith in your vision and in you and that they won’t be the sole financial resource and risk-taker in this new venture.

You can also look into business grants if your business idea meets the requirements. Entrepreneur recommends as a starting place for that research.

Crowd-Funding & Crowd-Sourcing

One of the newest and increasingly popular ways to fund a new business, no matter what kind it is, is through crowd-funding or crowd-sourcing. Sites like Kickstarter facilitate fundraising campaigns for everything you can imagine. This is how many new businesses, artists and even political campaigns are getting the funding they need to realize their vision. Smartwatch manufacturers and card games, social media platforms and, yes, coffee shops have been able to launch into their industries through the small, medium and large donations from friends, family, friends-of-friends, and strangers who saw their campaigns online and pitched in whatever they could.

Do some research about investing groups in your area in addition to individual investors. Some people come together and pool their money to collectively fund new businesses they believe in. There are also trade equity services, which typically work by allowing you to trade some skills you have for the skills of others; you sell your services instead of paying someone to do something for your business. There are also startup support networks like Y Combinator that offer some resources free-of-charge to startups as well as often having options to help with seed money.

Here are some Tips for Starting A Coffee Roasting Business & What to Know When Starting A Coffee Roasting Business.

Bank Loans & Lines of Credit

Finally, you can get a bank loan or apply for a line of credit. Depending on your state laws, and banking policy, you may need to have an exceptional line of credit as well as significant enough collateral assets to get the kind of funding you need. The Small Business Administration offers options for starting a business without those types of requirements; you just have to check if you qualify.

If you believe in the firm you want to start, it is almost guaranteed that there is at least one other person you can find who will as well. Start by finding that person and then figure out what funding strategy, or strategies, will work best for you!  

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