Have you finally decided it’s time to launch your own business? Is it time for your existing business to expand? Or, do you need to offset losses from economic downturns or the unexpected, like COVID-19?
If you answered yes to any of the above, then use the following 15 ways to raise money for your business.
How Can You Raise Money for Your Business?
If you’re able to swing this, then funding your business yourself is hands-down your best option. Besides not having to deal with interest or equity stakes, you can also play by your own rules.
1. Add an additional income stream.
Yeah. I know. You might be thinking that this is easier said than done. But, it is possible.
One suggestion would be to live below your means. That’s just another way of saying not to spend more than you’re bringing. For example, if your take-home pay is $5,000, try to stay around $4,000. That extra grand can be invested into your business.
Your other option? Earn more money.
If you’re currently employed, then ask for a raise or work overtime. If you can manage it, start a side hustle until you’ve earned the money you need for your business.
Ideally, you should work towards passive income. You’ll put in the work upfront, but then it requires little effort to keep the cash flowing in. Earning a passive income usually comes in the form of the four following types;
- Buying cash-flowing assets, such as real estate or investing.
- Building assets, think creating an online course.
- Sharing or selling assets that you already own
- “Reverse” passive income where you reduce spending.
Want specific examples? Then check out our 101 Passive Business and Income Ideas?
2. Sell personal assets.
An accessible way to raise money for your business is by selling some of your personal assets. Don’t be forced to part with anything that you don’t want to. But, you could try the Marie Kondo method and ask if certain items spark joy. If not, sell these items online or have a yard sale.
That might not bring in a ton of money. So, if you need to raise more money, consider my expensive items. I know people who have sold their cars and either bike or walk to work.
For longer commutes, they use public transportation or a ride-sharing service. In addition to making money from the sale of the car, they also don’t have to worry about recurring expenses like insurance, registration, gas, and maintenance.
You can also sell stocks, bonds, real estate, and high-end electronics. You may even want to downsize your home or at least borrow a home equity loan.
3. Raid your savings and retirement.
Another accessible way to fund your business is by withdrawing whatever you have in a savings account. I get that you worked hard to bolster your savings. But, it’s investing in your dream or passion. And, when your business takes off, you can replenish your savings.
If you have a Roth IRA, you’re able to withdraw your original contributions tax- and penalty-free. If you withdraw from a traditional IRA or employer-sponsored retirement account expect a 10% IRS penalty plus the back taxes that you owe from when you made the original contribution.
Borrow startup capital.
Don’t have enough cash on hand to invest in your business yourself? No worries. Rather than bootstrapping, borrow the money you need from the following sources.
4. Friends and family.
From my personal experience, you might want to tread lightly here. Money has the ability to permanently fracture even the closets of relationships. However, this is still a tried and true tactic if you need a small amount of money.
I think it’s important to keep this as professional as possible. It’s a simple way to keep your personal and professional lives separate. Also, it shows that you respect them. So, when approaching a friend or family member, keep these pointers in mind;
- Prepare a business plan, financials, and other documents as if you were meeting with a lender from a bank.
- Ask for their feedback instead of just bluntly asking for money.
- Don’t take it personally if they decline. A lot of people live by the “I never lend money to friends or family” mantra.
5. Use your credit card.
Yes. Credit cards do come with exorbitant interest rates. As such, using your credit card can make it a challenge to pay off your debt leaving you in a vicious debt cycle.
At the same time, credit cards aren’t all bad — especially when you need money for your business.
For one, they can be flexible. You can put as much or little as you want on your card. Secondly, you don’t have to fill out lengthy and time-consuming business loans. And, even though you’ll pay for it, you can take out cash advances if needed.
When possible, try to stick with low-APR credit cards. This will minimize your rate. And, consider switching to rewards credit cards like cash-back cards (Chase Ink Business Unlimited®) or travel rewards cards (The Business Platinum Card® from American Express).
6. Borrow from your retirement account.
Do you have an employer-sponsored retirement account, such as a 401(k) or 403(b)? If yes, you should be able to borrow up to 50% of your balance or up to $50,000. It depends on whichever is lower.
Since the money being lent to you is secured against your retirement funds, interest is low. In fact, this might just be your most affordable option. Just know that if you don’t pay the loan back on time, you’ll be penalized.
If you go this route, contact your 401(k) plan administrator to get the ball rolling.
7. Take out a loan.
You have several different options here, including;
- Personal loans if you’re in need of a small amount of startup capital. After all, it’s uncommon for unsecured personal loans to go above six figures. Just be wary of higher interest rates.
- Peer-to-peer loans via Lending Club or Prosper allow you to work with individual investors instead of banks. If you have a decent credit score, you might be able to land a P2P loan that offers lower interest rates, fewer fees, and more flexibility.
- A conventional business loan can be either secured or unsecured. While they offer greater flexibility, these loans have higher interest rates, shorter terms, and lower loan caps.
- Microloans can be an alternative if you didn’t qualify for a traditional bank loan. However, they’re more common among non-profit organizations. Still, there aren’t many strings attached and you can expect medium to low-interest rates.
If you don’t mind parting with future profits or a little control of your company, then you might want to think about offering equity of your company to investors.
8. Incubators and accelerators.
If you’re a new and innovative company, you could work with an incubator or accelerator. Just know that there is a fine line between the two. Accelerators “accelerate” the growth of an existing company. On the other hand, incubators “incubate” disruptive ideas in order to build out a business model.
But, what exactly do each of these accomplish?
Well, incubators, such as Idealab, can hook you up with the money, legal services, access to mentors, and even coworking space. Accelerators, including Y Combinator, the Brandery, and Techstars, will provide you with seed money in exchange for an equity stake.
9. Angel investors.
Like accelerators, angel investors will take an equity stake in your new business in exchange for capital. In addition to helping you get money to get your business off the ground, angel investors connect you with contacts and pass on their knowledge and experiences to you.
Visit AngelList, Band of Angels, MicroVentures, or Golden Seeds LLC to connect with possible angel investors.
10. Venture capitalists.
As with accelerators and angels, venture capitalists will provide capital to startups, early-stage, and emerging companies in exchange for the equity stakes of your business. It’s also common for venture capitalists to invest in fledgling companies that have proven to turn a profit in the past as well.
There are several drawbacks to be aware of, however. If financing is available, it’s often at a higher rate of return in lieu of taking a share of the company. If they go with the latter, they may hold into the equity stake until your business goes public. And, they also may demand some level of managerial control.
All the Rest
Crowdfunding sites like Kickstarter, Indiegogo, EquityNet, and GoFundMe have become increasingly popular among entrepreneurs and innovators. And, for good reason. These sites allow you to test your idea while raising money through;
- Rewards like the early release of a product, a special edition, or an exclusive discount.
- Investment crowdfunding campaigns. Here investors will get a slice of your company’s equity in exchange for their investment.
During your video pitch, stress your commitment and passion for your product or service to attract possible investors. And, make sure that you’re aware of the rules. For instance, if you fail to reach a specified monetary target, you will have to return money to the donors.
12. Product or service pre-sales.
If you’re still in the early stages of your business, meaning that your product or service doesn’t exist yet, then this might be an idea worth exploring.
To be honest, this can be intimidating. After all, you need to make sure that you’re offering something that your audience truly wants. Moreover, you need to meet strict deadlines if you want to keep your paying customers happy — you also don’t want them to demand a refund.
On the plus side, this not only helps your build capital but also buys you time to work out any kinks and respond to feedback. And, if you’re selling an actual product, then you don’t have to worry about a warehouse full of unsold inventory.
13. Strategic partnerships.
Do you have a strong relationship with a supplier, distributor, or customer who can benefit from your product or service? If so, why not ask them if they would want to get involved with your business.
One idea would inquire if a loyal customer would want to become a silent partner. Or, you could start a founders program. A friend of mine told me about a company called Splash Wines. As a founder, you’ll be a lifetime member, 5% Splash Cashback on every order, and other exclusive perks for $150/year.
Another suggestion could be through vendor financing. Here you would negotiate your payment terms. For example, as opposed to paying them every 30-days, ask if this could be pushed back to 45-days. That gives you 15 extra days to bring in money without as much going out.
14. Government programs.
Definitely don’t overlook government programs through agencies like the Small Business Administration. Securing an SBA loan comes with a number of benefits. These include low-interest rates and down payments, as well as favorable repayment terms and access to SBA resources.
Just know that because of the paperwork involved, this process can move just as fast as a Banana Slug — which crawls at just 0.3 kilometers per hour. Strong business history and good credit standing are also required.
In short, it can be tough obtaining such a loan. But, it wouldn’t hurt to try.
15. Contests and competitions.
To enter contests and competitions might seem like a stretch. But, you might actually win a monetary reward if you’re lucky the winner. Even if you don’t win, you’ll still get exposure, feedback from investors, and the networking opportunities can be invaluable.
Pitch contests take place throughout the year all over the world. And, the criteria for entry vary widely. But, the good folks over at Growth Mentor and Merchant Maverick have lists of global startup pitch competitions.
If you want to increase your chances of winning, or at least improve your presence, keep the following in mind;
- Refine your pitch so that short, snappy, and concise.
- Know your audience. For example, if you aren’t in front of industry leaders, skip the jargon so that the audience understands what you’re saying.
- Apply as early as possible.
- Don’t be caught off guard. Be ready to answer common questions.
- Play to your own strengths so that you stand out from the contestants.
- Make the most of the contest by making plenty of connections.