It’s possible to start your business without a lot of capital, particularly if you are freelancing, working from home, or doing business online. However, it is important to assess your funding needs, including assets like a laptop, software, or inventory - as well as the amount of cash flow you will need to keep you afloat until your business is making a profit.
Remember, small businesses can get started without a lot of assets and inventory. You don’t need to buy everything you want at the very beginning. Find a way to start as low cost as possible - think of using garage space to store inventory instead of paying for a warehouse or using social media to make the most of low-cost marketing - until you get some cash flowing. Consider working part time when you launch your company. This will give time to build your business with less risk and provide you with a steady cash flow from another source. Once you’ve established a base, then transition to full time business ownership. It is also important for you to have fully developed and tested your product or service. Ensure your product or service is as complete and ready-for-market as it can be before marketing it or seeking financing.
Below we will be discussing Financing Options including: Bootstrapping, Crowdfunding, and Microloans, three different financing options that might work for your needs.
Bootstrapping:
Instead of seeking external investors, entrepreneurs with very limited capital can find the funds to startup by reaching into their pockets and pinching together a mixture of supplemental income, savings, credit cards, and stock investments. As with any financing option, bootstrapping your business has its pros and cons:
• Pros: Many entrepreneurs choose this route because they do not want their business to be defined by the demands of external investors
• Cons: At the same time, bootstrapping is risky - your personal savings, stock portfolio, and debts may be at risk. If you are thinking about bootstrapping, consider consulting with a trusted financial advisor who specializes in small businesses.
Microloans:
Microloans are small, short-term loans for small businesses.
• Pros: These may be available through your bank’s own loan programs or you might be eligible for a loan that is guaranteed by the SBA. SBA loans are designed to help small businesses get started - the SBA guarantees the loans on behalf of the lender or bank, which reduces the risk involved in lending to new business owners. Microloans are typically made up to $50,000.
• Cons: While microloans are an option, they can be difficult to secure for someone with poor or no credit history. Additionally, microloan programs are not available everywhere, it may be difficult to find a lender with a microloan program.
Crowdfunding:
Crowdfunding is a term used to describe a network of people who pool their money and resources together, usually via the Internet, to support efforts initiated by businesses. You are probably familiar with popular rewards crowdfunding sites such as Kickstarter and Go Fund Me. If you have a popular social media page you can put the direct link to your business in your profile. This is probably the easiest way to get started in crowdfunding and can be a good tool to gauge customer interest as well. However, there are actually four different types of crowdfunding and the rules can be confusing. The other types of crowdfunding that may be useful to your business are debt crowdfunding (also called peer-to-peer lending) and equity crowdfunding (where your funders actually take a stake in your company and its profits). Some of the rules regarding equity crowdfunding are still being decided by the government. If you plan on using crowdfunding, be sure you understand all of the rules and costs. Crowdfunding also has its pros and cons.
Pros: • Relatively quick and simple to set up • Can help you gauge interest in your business idea, particularly if it’s a unique idea • Can be a very cheap form of financing
Cons: • Rules can be confusing • Can be difficult to achieve fundraising goals • Often, if you don’t reach your goal, you see nothing in return for your work.
Question...
In financing your venture what can you used to fund your business?
A) Bootstrapping
B) Crowdfunding
C) Microloans
D) All of the above.
The correct answer is D. All three options can be used to fund your business. You can also use more than one option to fund your business.
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