Financing Options to Grow Your Business

When it comes to starting and scaling a business, you may have an incredible idea, but an idea is nothing without a solid financial plan in place. Luckily, there are multiple funding options available depending upon your needs and situation.

Discovering what your needs are and the options out there will help you to make the best financial decision for your venture and bring your idea to fruition. 

Step 1: Determine Your Funding Needs

If you have yet to calculate your startup costs, this will be the first step. Create a spreadsheet to get a clear picture of all your fixed and variable costs. Then, create a financial projection to evaluate how long it will take to achieve profitability. A CPA (Certified Public Accountant) can review your cost accounting to help ensure that your assumptions and projections are accurate. You can also find a mentor in your specific industry on sites such as score.org to provide additional feedback. Doing this research upfront will help you gain the clarity you need before you reach the next step: seeking out funding options. 

Step 2: Understand Your Funding Options

They say it takes money to make money and fortunately, there are several funding options available. The primary categories are private equity and debt financing— each possessing unique advantages. 

Option 1: Work with an investor

Investors can provide initial funding in the form of venture capital. Rather than incurring debt, this type of funding gives up equity in your business in exchange for capital. Equity funding comes with oversight and advice from angel investors or venture capital firms to help your company get traction as quickly as possible. This option takes a significant ownership stake, so you need to be comfortable giving up some control in exchange for capital and expertise. 

In order to qualify for venture capital from firms, your business must meet certain criteria. You will need to present a clear ROI through a demonstration of good cash flow, liquidity, product analysis, expense control and success metrics. Several big businesses gained success with this route, such as: Spotify, Google, and GitHub. 

If you are just starting and don’t have the metrics— but still have a solid business case to present— working with an angel investor may be a better option. Instead of working with a firm, you would be working with an individual who wants to contribute to your business’ success at a slightly smaller scale. The Angel Capital Association has excellent resources for researching investors in greater detail.

Option 2: Apply for a small business credit card or line of credit

Credit cards and lines of credit offer debt financing for convenience purchasing: you can make expenses and pay them off later. The major difference between the two depends on the times at which interest will accrue. 

These options can be opportune when cash flow is temporarily low and a unique marketing opportunity arises, but you still want to retain complete control. Cash flow management tends to be one of the most difficult aspects of being a business owner, so having an extra resource can be beneficial for success.

Many business credit cards can pay you something back in the form of points, miles or cash back rewards but have a higher APR than a line of credit. Other than these benefits, there are other factors to look into when researching your best option, including annual fees and APR rates. Keep in mind there are options out there that have 0 annual fees and 0% APR for an introductory period. Nerdwallet has many tools to help you weigh your criteria and make an educated decision. 

The requirements for these options can vary between issuers, however, the primary criteria includes time in business, cash flow, and good credit standing. 

Other financial advantages these opportunities present include ease of account management and credit building for improved future loan terms.

Option 3: Apply for a SBA loan 

A typical bank loan holds the applicant to high qualifying standards of income and liquid assets available to minimize risk. This type of debt financing may reduce eligibility for many startup owners. 

Fortunately, the SBA (Small Business Association) offers a backing for many lenders through their lender match program. Many banks, both national and local, as well as credit unions are a part of this program to help assist small businesses while minimizing their risk. Well known businesses like Chipotle, Apple and Under Armour received funding through this program. 

While standards for finding a match are still high, the likelihood of securing a loan is greater with this option. A good business history is vital - from a credit and time standpoint. The specific minimum requirements include being in business for at least 2 years, and having an annual revenue greater than $100,000.

Option 4: Create a community

If both equity and debt financing are not eligible for you at this time - don’t give up - there are alternatives to explore. Many businesses find funding through the goodwill of the community. Businesses like Oculus, Yeti, and MVMT all utilized crowdfunding resources like Kickstarter or Indiegogo to finance their ventures.

For this to work, your business would need a compelling campaign that inspires others to believe in your mission. Sharing your journey on social media with friends and family can help garner support. Listening to feedback from this community can help you understand what people want and help you create the right marketplace to grow your business. If you can successfully create a market before launch, you may be able to self fund your venture. Gretta Van Riel, an eCommerce specialist, advocates for this method and has founded over 5 multi-million dollar businesses. 

Between equity, debt, and community financing, there are many choices at your disposal. Regardless of where you get your funding, the good news is that we live in an economy with a lot of capital to provide support. Ultimately, understanding the eligibility requirements for different funding options as well as your specific preferences will help you to operate and grow a successful business.