One of the most frequent questions we get as a mentor to entrepreneurs is, “How do I find the money to start my business?” I always answer that there isn’t any magic, and contrary to the popular myth, nobody is waiting in the wings to throw money at you just because you have a new and exciting business idea.
On the other hand, there are many additional creative options available for starting a business that you might not know about. If you have the urge to be an entrepreneur, I encourage you to think seriously about each of these.
If you have a tech-based idea, you may have an easier time attracting attention from venture capitalists or angel investors, but as more companies work that angle, finding an investor is harder than ever. So how can you get your business off the ground?
1. Friends and Family
Borrowing money from friends and family is a classic way to start a business. While it may be harder to convince investors or banks of the quality of your idea, your family and friends often believe in your dream.
They may be more willing to help fund your company. If you do go to friends and family for loans, it’s a good idea to make sure that each of you gets sound legal advice, especially if you are taking the money as a loan.
The downside? Borrowing money is a quick way to lose friends and sour family relationships. Be careful if you decide to proceed this way.
2. Small Business Loans
Some banks specifically offer loans to small businesses, but banks historically are careful about giving money to small companies. It can be difficult to qualify. There are alternative lending companies, however, who may be better equipped to help you get your business off the ground.
The downside? Some of those alternative lending companies are predatory. Make sure you know who you’re borrowing from before you sign on the dotted line.
3. Trade Equity or Services
Looking to get some web design done? See if you can barter with your neighbor who does some freelancing on the side. Perhaps you’ll help him with some marketing advice down the road. In virtually every city, there are communities of fledgling business owners who can work together.
The downside? Trading services or equity can be an awful way to make a living, and so not everyone is willing to do it. Don’t be offended if your Number One choice says no way.
One of the most common ways to get a business up and running is through “bootstrapping.” Basically, you use your own funds to run your business. This money may come from personal savings, low or no interest credit cards, or mortgages and lines of credit on your home. Getting a free credit report card will help you assess where you financially stand. Knowing this will help you figure out the interest rate you will get on loans, which can give you access to affordable credit.
The downside? If your business doesn’t succeed, you may have a substantial amount of debt that you now need to manage.
5. Incubator or Accelerator
Business accelerators and incubators have sprung up all across the country, particularly near colleges with a strong business program. These spaces are part communal workspace and part mentorship development centers. Young businesses can get a great start here while partnering with some amazing people.
The downside? They are often focused on tech-heavy businesses, so you might struggle to find one that works for your company.
If you have a sexy idea and you’re great at social media, crowdfunding might be an option. When websites like Kickstarter and Indiegogo first started, there were a number of businesses that had great success pulling together funding through their reach.
The downside? Lots of companies aim for crowdfunding, so you have to generate a lot of buzz to make it through the overall signal noise. It’s also very possible to overextend yourself and frustrate backers, which can lead to a great deal of animosity before your company is even really off the ground.
7. Small Business Grants
The Small Business Administration as well as other organizations sometimes offer grants to small businesses that are run by women, minorities, or veterans. If you fit into one of these categories, it’s worth speaking to your local SBA chapter, or Chamber of Commerce, to see if there’s local grant money that you may be able to apply for.
The downside? Check carefully to make sure you won’t need to pay the money back, or agree to certain conditions down the road. Not all grants have stipulations, but it’s good to know what you’re agreeing to before you accept the funds.
8. Local Contests
Let’s face it; unless you have an incredible idea and a strong business history, you’re probably not going to make it onto Shark Tank. Many local COCs and SBAs have decided, however, to run local Shark Tank style competitions. Since these are more locally focused, often requiring that a business operates in a particular area in order to enter, they may be less competitive.
They are also a great way to practice your pitch for other investors. Generally, you won’t lose anything but time for trying. And even if you’re not the number one choice, you may spread awareness of your business.
The downside? You could invest a lot of time into your business plan and investor presentation, but not be chosen for one of the prizes. That work will probably benefit your business, however, so it’s hard to really count this as a downside.
9. Keep Your Day Job
This is the suggestion no one likes.
If you currently have a job that is meeting your expenses and letting you live a relatively comfortable lifestyle, don’t be in such a hurry to quit your job and follow your business dreams. Spend some time getting the business off the ground and building through the early, difficult phases with the solidity of your 9-5 job paying your bills.
This lets you build your business with fewer compromises, and lets you stay true to your vision without needing to give in to financial pressure. You can also get a great experience from your day job to help you run your company down the road.
The downside? It is possible that you’ll miss opportunities by focusing on your day job and running your company as a side business. You might also be unable to devote the necessary time and energy to really engage with the project and get it off the ground.