You have your million-dollar business concept. The only difficulty? You do not have a million dollars (yet; cross your luck!). Launching a new business requires enthusiasm, bravery, and capital. If you don’t have at least a modest amount of startup capital lying around — which few of us do — it could be the obstacle that prevents your million-dollar idea from taking off.
Fortunately, new enterprises like yours have a variety of funding and capital options. And financial expertise is not required to take advantage of them. The following are some common methods for entrepreneurs to finance their innovative ideas, transforming them into small businesses.
1. Request a loan
For new enterprises seeking working capital, applying for a small business or bank loan is a common option. New business owners have access to various small business loans, such as Small Business Administration (SBA) loans, traditional loans, business lines of credit, and speciality loans. Examine each loan’s eligibility requirements, interest rates, and terms to determine which is the best match for your business.
- The United States government guarantees SBA loans, which typically carry some of the lowest interest rates. However, because SBA loans are so popular, eligibility requirements may include a strong credit history and collateral.
- Traditionally, banks and other financial institutions provide loans. These loans are extremely adaptable and can be tailored to your needs. However, if you lack a solid business history or excellent business credit, obtaining approval may not be easy.
- Lines of credit for businesses enable you to withdraw the funds you need when needed, and you only pay interest on the funds you withdraw. However, using a business line of credit may prevent you from obtaining future loans or financing.
- Certain organizations or causes, such as women, people of colour, immigrants, and rural business owners, are eligible for speciality loans. If you are eligible for a speciality loan, there will be less competition. However, a speciality loan may restrict your use of funds.
Prepare to present your credit history, business history, business plan, and any collateral, regardless of the type of loan you select. Keep a watch on your debt-to-income ratio and business credit score to increase your chances of being approved for a small business loan; pay your bills on time, pay off old balances, and increase your credit limits. Focus on constructing a solid business plan and financial projections if you’re a brand-new company with no business history.
2. Apply for a grant for modest businesses
Small business grants are intended to help you finance your company without incurring debt or a loan. Unlike small business loans, grants are typically not repaid; you receive the necessary funds without stressing about interest rates or repayment plans.
But this is not simply free money. Grants for small businesses target specific groups, such as minorities, veterans, and women, as well as initiatives, such as scientific research and economic development. Small business proprietors have access to various grants, including federal, state and local government and private grants. You have a high chance of finding a grant that suits your business, but you must work for it. Most grant programs have a rigorous application process, and the use of any grant money you receive may be restricted.
Finding the appropriate grant program for your business requires research and perseverance, but any quantity of grant money can be advantageous. Your local Small Business Development Center (SBDC) can assist you in locating grant opportunities for your new venture or innovative concept. Developing a solid business plan and value proposition will always increase your odds of being awarded a grant.
Today’s enterprises have the advantage of being able to solicit funds via crowdfunding. Crowdfunding enables the solicitation of modest contributions from many individuals or “backers.” Obtain enough supporters, and suddenly, you have working capital!
Your request must be persuasive. Before donating to your cause, donors will want to know how their funds will be used; this is where your business plan and value proposition come in. Effective crowdfunding campaigns appeal to human emotions and tell a captivating story. It is the difference between “I need $10,000 to start my art business” and “I need $10,000 to purchase art supplies and rent space to launch my art studio where I’ll offer art classes to at-risk youth.” Which campaign do you support?
Crowdfunding platforms such as Kickstarter, GoFundMe, and Patreon make it simple to initiate a campaign and spread the word about it. Some platforms operate solely based on donations: you request donations from supporters without providing anything in return. Others offer incentives or equity proportional to the quantity invested.
Crowdfunding is a great method to obtain funding while simultaneously constructing a group of devoted supporters (i.e. future customers). But don’t make the mistake of thinking it’s a fast and simple method to earn cash. According to Kickstarter data, over 10 per cent of campaigns conclude without a single pledge. It would help if you exerted significant effort to advertise your campaign and gain backers. Consider it an intensive course in marketing for your new company.
4. Find angel investors
Angel investors—high-net-worth individuals who are willing to take a risk on your million-dollar idea—may provide financial salvation for brand-new businesses. Typically, angel investors are willing to invest in a business idea while it is still just a concept. They know there is no assurance that the idea will succeed, but they hope it will.
If you don’t have any millionaire friends, you can discover angel investors by developing your networking skills or utilizing online platforms that connect new entrepreneurs with accredited investors. Finding investors is only half the battle, however. If you want an investor to open their wallet after discovering them, you’ll need to impress them with your business pitch and value proposition.
5. Minimize startup expenditures
No two companies are identical. The cost of launching a new enterprise can range from $500 to $50,000 or more. Your startup expenses will vary depending on the nature of your business and the products or services you intend to sell.
Some costs, such as rent, payroll, and office supplies, can be avoided if you do not plan to establish a physical location or hire employees immediately. Other initial expenses, such as taxes, insurance premiums, and fees for permits and licenses, cannot be avoided.
You may be able to reduce your startup expenses (at least until your business takes off) by utilizing one of the numerous service provider marketplaces or sharing economy marketplaces available. For instance, Etsy, Amazon, and eBay make it simple to sell products online. TaskRabbit, Thumbtack, and Fiverr facilitate the sale of services. Utilize these platforms to build your brand and business while concurrently establishing business credit and a track record, which can lead to future financing opportunities.
No money, no problem
Do not allow a shortage of startup capital to prevent you from monetizing your million-dollar idea. There are numerous options for new business proprietors to obtain funding (without incurring a mountain of debt). Regardless of the direction you decide to take, it is advisable to go forth with a solid business plan (including financial projections), value proposition, and elevator speech. It requires some effort up front, but it is a useful exercise for clearly understanding your business concept. Hopefully, your time investment will pay off monetarily.