Q: I heard your webinar about creative ways to finance a business, though I only came in at the end. I have been out of work for a year and my unemployment is about to run out. What options do I have? Thanks for your time.
A: There is no doubt that funding a business – whether it be a full time or part time venture, a startup or for growth – has been challenging the past few years. For one, home equity dried up, and two, the general downturn in the economy has made money harder to find, and get.
But the good news is that it is still out there; maybe it’s hidden a little better these days, but it is still there. That said, no matter the economy, funding a business is always an issue entrepreneurs face. To help with this, I have a new book coming out this week called Get Your Business Funded: Creative Methods for Getting the Money You Need. In it, I share more than two dozen different ways to fund a business.
Here are some of my favorite ways to fund your business venture:
1. Crowdfunding: Crowdfunding is one of those cool, new ideas that really only is possible because of the Internet.
Here’s how it works: With traditional business funding, you either take on some debt and agree to pay it back or share some equity and take on some partners. Crowdfunding is different. On a crowdfunding site like IndieGoGo or Kickstarter, you list your business or project and ask people to invest in it. Then, instead of paying them back with money or equity, you agree to pay them back with some “perk” from your business. Although the crowd invests small amounts of money (typically in the range of hundreds each, or less), by appealing to the masses, you can raise thousands.
Example: Say you want to open a food cart. You could create a crowdfunding campaign whereby you might agree to name various sandwiches after your crowdfunding investors. I heard of a campaign where a woman wanted to travel around the world and offered people a postcard from her various stops in exchange for small donations. It worked.
2. Bank loans: I say this is a creative solution because there is a belief lately that banks are not lending to small business. Wrong. Banks are in the business of lending money, and they especially like lending to businesses. Sure, it might be a little more complicated these days, but so what? No one said all of this entrepreneurship stuff was easy. The money is there, waiting.
3. Business plan competitions: There is an explosion in business plan competitions right now. Communities see them as a way to attract and reward successful business ventures that can boost the economy, and universities us them to reward the best and the brightest. Winners win assistance, in-‐kind contributions, and yes, funding.
For example, the Rice University business plan competition “has grown from nine teams competing for $10,000 in prize money in 2001, to 42 teams from around the world competing for more than $1.3 million in cash and prizes” (alliance.rice.edu.)
4. Business incubators: How great is this idea: Business incubators are, generally, public-‐private partnerships that also reward great businesses and startups with financial assistance. And the reason is similar to business plan competitions: The incubators want to foster entrepreneurship and boost their local economy.
While some business incubators offer funding, more typical is the incubator that offers its participants in-‐kind assistance and steep discounts, such as
• Free or cheap office and work space
• Clerical assistance
• Business and marketing assistance
• Financial and legal help
• Networking opportunities and mentorship
Google “business incubators” and the name of your city or region and you will find some.
5. Investors: Entrepreneurs love OPM – Other People’s Money. But how do you get it and what do you need to do to show investors that your business is worthy of their trust? Of course you need a great plan, solid financials, and some secret sauce, but here’s the thing investors really look at: Your team. Having qualified and experienced people around you, people who already believe in you and have signed on for the ride, makes a huge difference in the investment game.
Yes, finding the money you need for your business can be a challenge, but look around you as you drive down the road. All of those businesses did it, and so can you.
Today’s tip: Business plan competition first emerged at the University of Texas in the 1980s. Two Texas MBA students wanted to create a business school competition akin to the moot court competitions law schools offered. The first competition for their brainchild, the “Moot Corp.”, was for Texas MBA students only, in 1984. The idea quickly spread to top business schools around the world.
Have questions about Small Business Financing? Connect with a SCORE Mentor online or in your community today!