Small Business Financing Tips for Startups: 10 Methods To Get Funds Without a Loan

As an entrepreneur, the hopes of turning your great idea into a viable enterprise rest mainly on finding small business financing. Simply put, you need money to start a business. This is the harsh reality of the business world.

Whether its sourcing raw materials, hiring new staff or renting office space, every aspect of starting a business requires money. Unfortunately, today, banks have adopted tight lending standards, and it’s relatively difficult to secure a business loan, especially for startups. However, that doesn’t mean you cannot find funding for your small business.

In this article, you’ll learn 10 ways to get funds for your small business without a loan. The goal is to help you find outside financing options that can securely get your business off the ground.

small business financing tips

Determine How Much Funding You Need

Businesses, in general, face myriad challenges, and startups are no exception. Right from the outset, your small business is going to face its own unique set of obstacles. However, lack of funding outranks all the other challenges. Let’s face it: limited funding can cripple or slow down your small business even before it sets off. In fact, 33% of small business owners in the US consider a lack of capital as the major pitfall for growth.

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Top Challenges That Small Business in the US Face in 2019

Top Challenges That Small Business in the US Face in 2019
Lack of capital or limited cashflow: 33%

Lack of capital or limited cashflow

Top Challenges That Small Business in the US Face in 2019
Marketing and advertisement: 15%

Marketing and advertisement

Top Challenges That Small Business in the US Face in 2019
Time management: 13%

Time management

Top Challenges That Small Business in the US Face in 2019
Talent acquisition and employee retention: 13%

Talent acquisition and employee retention

Top Challenges That Small Business in the US Face in 2019
Administrative tasks (Accounting): 13%

Administrative tasks (Accounting)

Top Challenges That Small Business in the US Face in 2019
Managing: 6%



Source: GuidantFinancial

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However, as they say, “a smooth sea doesn’t make good sailors.” Every challenge you face is a new dawn and an opportunity to improve your business acumen. As such, when you are in a financial predicament, and no bank is willing to lend you, you don’t have to crumble to the pressure of the situation. Rather, you should seek alternatives ways to wade through the difficult and realize your business goal.

As you may have known, getting out of any tricky situation starts by recognizing the root cause of the problem. The same way, you don’t source for startup financing blindly. Therefore, before you even start to jot down the probable sources of funds, it’s paramount that you determine how much money you need. The figure will be shaped by numerous factors like your financial situation and the nature of business.

Remember, too, to prioritize expenditures. Do you really need an office in the heart of the business district where rent is high? How much equipment do you just need at the moment so you don’t burn all the money on capital expenses? You’d like it also knowing that there is plenty of free software out there to get you going. For instance, these free CRM solutions or free project management software.

You can also check these free marketing templates. Not only do they cost you zero, but they can also point your business in the right direction at the early stages.

Getting it right at this stage will guide your course and boost the success of your funding mission. Once you know how much funding you need, its time to hit the road and examine the available sources of funding.

10 Methods to Get Funds without a Loan

1. Personal Financing

Look around the boundaries of your financial territory. How much money can you raise on your own? Personal financing should be the first option to explore when trying to raise seed money for your small business. There are several options when it comes to raising money via personal financing.

One is your savings. How much money do you have in your bank account? Instead of letting that money to sit idle in your account, you can use it for your small business financing. The best thing about using your savings to fund your business is that you don’t start in debt. Besides, you’ll not be obliged to giving away any equity or control of your business.

Secondly, if you own a large house, you can rent part of it to raise money for your business. Rental income may not be a quick fix, and it may not be a good option when you are at the seed stage. However, we consider this a safer bet than using your house as collateral to secure a loan. Most importantly, when your business reaches the growth stage, the rental income will be a steady source of funds to keep the business afloat.

Finally, when it comes to personal financing, your options are not confined to savings and rental income. There are plenty of options to examine here. Ideally, you should take your time and think creatively to come up with ways to raise money for your startup. For example, you can use your “other” skill to establish a side business that requires low overhead costs. The goal is to use the side business as a stepping stone or source of income for your main project.

2. Money from Friends and Family

Once you exhaust all personal financing channels and money is not enough, you can turn to family and friends for financing. This is yet another way of keeping your funding mission ultra simple.

Of course, supportive family and friends can be a reliable source of business funding. This is because they have a vested interest in seeing your startup succeed and will easily trust you with their money. The best thing about family and friends is that they will demand lower interest than a financial institution. Besides, family financing is flexible, and you can easily negotiate a generous grace period.

However, as simple and pleasing as it sounds, you need to tread wisely and keep everything formal. This is because blending family and financing can have potentially bad consequences. It puts your personal relationships and the financial future of your family and friends in the line.

To be on the safe side, approach your family and friends with a formal business plan, and elaborate financial projections. Most significantly, reiterate the risk involved and ask them to keep their expectations about the investment in check.

3. Crowdfunding

Crowdfunding is perhaps one of the most popular small business financing options in today’s business world. The method is easy, fun, and highly effective. It is a straightforward concept that allows you to harness the financial power of potential investors.

Essentially, the method is reminiscent of a charity sponsorship extended in the business world. The best thing about crowdfunding is that it allows you to raise money for virtually any project. All you need to do is to “sell” your idea to the masses, make known the amount you want to raise, and set a timeline. Then, interested investors will come together on the crowdfunding website and contribute money to your project.

Interestingly, there are numerous crowdfunding websites like Kickstarter, Fundable, Indiegogo, and Rockethub. However, each website has its benefits and downsides. Therefore, you need to examine their details closely and weigh them against your financial goals. Most importantly, remember to use one of the best fundraising software to streamline your process.

crowdfunding process

4. Grants

Grants simply mean “free money.” In other words, once you receive a small business grant you are not required to repay it. Therefore, you don’t have to worry about interest rates, term lengths, refinancing, and APR. And, when it comes to sourcing for financial impetus, things don’t get better than this.

Owing to the enticing nature of grants, they are not easy to find. The competition is fierce, and the application process is long and arduous. Besides, some grants like government grants may not be available for startups. Even more, a large number of state and federal grants are meant for nonprofit organizations.

However, that doesn’t mean you cannot find grants for your small business. With a bit of research, you can find, apply, and even win grants for your startup. Precisely, if you find a grant that your business qualifies for, be as specific as possible about how you intend to use the money. This way, you will get past the first hurdle and boost your chances of landing the free money.

5. Community Financing

Are there Community Development Finance Institutions (CDFIs) close to you? Apparently, there is a number of community schemes set up by the government to aid startups like yours. If for whatever reasons you are denied credit or can’t access business loans, CDFIs can help you out.

The institutions primarily focus on providing working capital or bridging loans to foster the small business culture. However, like grants, the CDFI fund has strict terms. As such, it’s pretty difficult to get funding from these institutions, especially if you are not a social enterprise or microbusiness.

6. Angel Investors

angel funders

Remember our first step? It plays a part in attracting angel investors. More often than not, investors don’t pump cash into a business if they don’t see your commitment.

Angel investors are always searching for the “next big thing” in business realms. If your business idea is viable and has the potential to grow exponentially, be confident to pitch to angel investors. With an impressive idea and having thrown your financial weight behind it, you’ll most likely find a willing angel investor.

Interestingly, striking a deal with an angel investor is a win-win scenario for both parties. You get the money you want, and the investor gets a share of equity in your business. It’s as simple as that. Actually, it’s probably one of the best ways to give your startups the impetus it needs to get off the ground without forfeiting control of your business.

7. Venture Capitalists

Venture capitalists are pretty much like angel investors. However, with venture capitalists (VCs), you’ll have to surrender a share of equity and control of your business.

Primarily, venture capitalists are on the lookout for startups with outsized potential for growth. They inject funds into your business, with the hope of getting monetary returns in the future. Because of this, VCs will want to have a say in the direction of your business. And, the best way to achieve this is to have some control in the management of your venture.

If you are comfortable with this arrangement, then it should be easy for you to find a venture capitalist. However, VCs funding comes with its set of caveats, foremost is control, so scrutinize your options closely and don’t rush into a decision.

8. Competition

How good is your business idea? Are you confident enough that it can take down other ideas? If yes, the good news is, you are a few steps away from the funding you need. There are many startup competitions out there that you can enter.

Generally, all you need is a comprehensive business plan or a unique product to take part in the contest. However, the eligibility requirements, mode of competition, and entry fees may vary from one contest to the other.

But, with the monetary gain on the table, nothing should stop you from entering the competitions you qualify for. You never know but if you pitch confidently, you may land the ultimate reward: small business financing. Moreover, startup contests put your entrepreneurial skills to test and are effective marketing platforms for your business.

9. Tap into 401 (k)

Tapping into your 401 (K) is another interesting way of funding our startup. This method is legal, and it allows you to access the money you have accumulated into your 401(K) program. There are provisions in the tax law that you can exploit to avoid being penalized.

However, the steps are legally complex. Because of this, you should get legal advice from an experienced professional. This way, you easily roll over your retirement savings as a business startup without attracting any penalty.

10. Product Presale

As the name suggests, this is an arrangement where you presell a product to fund its production. Does that even make sense? Basically, you’re collecting funds from the potential consumers before providing the product.

This way of small business financing is risky, and its ramifications are too intimidating to behold. But, when executed accurately and purposefully, it helps you get the funding and a ready market for your products. To succeed, you’ll need to put in place a workable timeline and stick to it to the latter. You can use any free but reliable accounting software tools to manage the funds.

However, the risks of product presale slightly outweigh the benefits. Because of this, the method should be the last resort when you are searching for business funding.

Ways to Get Funds without a Loan

Small Business Financing Tips for Startups

What’s Next with Your Small Business Financing?

Sometimes ambitions may drive you to heights where you stop at nothing to find funding for your startups. There is nothing wrong about that; actually, it’s good to have goals and to pursue them by all means possible. However, when it comes to small business startup financing, you must practice caution with the available financial choices.

This is because some options are good but can auger ill for your business in the long run. Therefore, take your time and examine all the options we’ve highlighted, objectively. The best-case scenario would be finding enough funds through personal financing or family and friends funding. However, if need be, you can go as far as doing a product presale to get the funds you want. Once you get financing, you should keep a tight grip on your expenses to ensure you don’t burn money and that it is put to maximum use. You can examine some of the accounting software tools that startups use; they are either free or affordable.

Allan Jay

By Allan Jay

Allan Jay is FinancesOnline’s resident B2B expert with over a decade of experience in the SaaS space. He has worked with vendors primarily as a consultant in the UX analysis and design stages, lending to his reviews a strong user-centric angle. A management professional by training, he adds the business perspective to software development. He likes validating a product against workflows and business goals, two metrics, he believes, by which software is ultimately measured.

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