by Matt Reinstetle (Staff Writer)
Updated November 30, 2022
For entrepreneurs, obtaining the right amount of funding can mean the difference between success and failure when launching a small business.
But for newbies, knowing how and where to find working capital can be an intimidating process.
So, where do you start? There are several ways entrepreneurs can obtain money to fund the launch, expansion of day-to-day operations and cash flow of their small businesses.
Each method comes with its own pros and cons based on several factors, including the age of the business and the financial history of the borrower.
11 Ways to Obtain Small Business Funding
Below is a list of 11 ways entrepreneurs can obtain small-business financing. This ranking is based on ease of access, as some options might not be available to business owners with no prior experience or to people launching startups.
With bootstrapping, entrepreneurs launch their businesses using as little external capital, such as loans, as possible. The funds come from either personal finances, such as selling assets, using savings or credit cards or from using revenue from the business once it gets going.
This is a very lean method of running a business, as entrepreneurs find the least expensive way to make a viable product or service.
If you do choose to empty your savings or use credit cards to fund your business, be careful because there is no guarantee the business will pan out.
Nikki Larchar and her business partner, Tina Todd, bootstrapped their company by pooling their finances and launching the human resources consulting firm SimplyHR about 2 1/2 years ago. She believes bootstrapping her business instead of getting a loan is a significant reason why she was able to turn a profit within a year after launching.
“For us, it’s been monumental being able to grow the business how we want to grow it and not have a looming loan over our head,” she said.
Pro: Avoids starting your business in debt.
Con: Not an option if you don’t have assets to sell or personal savings to use.
2. Crowdfunding Platforms
Here’s how it works: Entrepreneurs and small business owners create a 30-day fundraising campaign seeking investors in the company or project instead of going to a bank for money.
Usually, business owners reward individual investors with some kind of gift, product discount or, sometimes, equity in the company.
Last year, Larchar used Kickstarter to raise $10,200 to fund a comic book that human resources departments could use to teach employees about sexual harassment policies. They met their goal and launched in January 2019.
“[W]e were able to fully jump into the project a lot quicker than we would have otherwise,” she said.
Pro: Can generate buzz for your business while raising funds.
Con: No guarantee of hitting your desired funding goal.
3. Product Pre-Sales
An easy way to acquire funds if you’re operating a small business selling products is to hold a pre-sale in which customers pay for goods up-front. The business owner can use the money raised to fund the manufacturing of the initial batch of products.
“Product pre-sales is such a great strategy because you’ve just proven the customers want your product,” said Kedma Ough, the statewide innovation director for America’s Small Business Development Centers in Oregon.
Pro: Can help alleviate some of the upfront costs of making the products.
Con: Not a viable option for service-based businesses.