Proud family man, global traveler and creator of award-winning agencies Weberous and Generate Culture serving clients worldwide @rafaelromis
Are you looking to scale your small business?
When first starting out, you probably relied on bootstrapping or loans from friends and family. Now, your business is positioned to scale, but there’s one problem: You need more capital. If you’re looking for different ways to raise more capital for your small business, you’re not alone. In 2023, small businesses in the U.S. borrowed $52.4 billion from the Small Business Administration (SBA). That’s more than several countries’ GDPs and doesn't even account for other lenders' loans.
We've worked with over 300 small businesses, and I can tell you firsthand that bootstrapping does work, but it's much slower, and often speed to market is the key to success. That's why funding is so important.
What's interesting is that a lot of business owners don't consider all of the funding options they have available. Here are some you should think about:
Government Grants
In my opinion, one of the most underrated funding opportunities for small businesses is government grants. Unlike most loan options, government grants are awarded by the U.S. government and do not have to be paid back. However, they involve strict criteria for applicants, and it can be quite an extensive application process.
Even though it can take some time and a lot of paperwork, the payoff can be worth it if your application is accepted. The two main types of government grants are federal small-business grants and state or regional small-business grants.
Another lesser-known option is corporate small-business grants. A growing number of large companies with a philanthropic mission offer small-business grants to smaller companies that align with their vision and values. While most corporate grants are awarded to nonprofit organizations, there are some available to for-profit businesses.
Basic Business Loans
The simplest option to secure capital for your business is through a basic business loan.
SBA loans typically offer the best rates and terms for small-business loans. To qualify, you typically need to meet certain criteria, but if you don’t, there are many other lenders you can reach out to.
In recent years, as technology has advanced, digital lenders have grown as an alternative to traditional banks. The entire process is very quick, can be done completely online, and generally has a higher approval rate than traditional banks. The caveat is that they typically have higher APRs and more expensive rates overall, but it may be worth the trade-off.
Crowdfunding
One of the most unique funding opportunities of the 21st century is crowdfunding. There are thousands of incredible stories of businesses that rose to the top through a successful crowdfunding campaign. For example, a few years ago, one of our clients raised $3-plus million on the popular crowdfunding platform Kickstarter for their innovative luggage. With the right product and the right pitch, you could be the next one.
Crowdfunding is a unique way for you to not only raise capital to reach your business goals but also connect with like-minded people and potential customers. It’s a funding and marketing opportunity: With the right crowdfunding campaign, you could end up with thousands of new customers and millions in capital, all while reaching your growth goals.
Angel Investors
Another alternative to a traditional business loan is securing funding from an angel investor, an accredited business-savvy individual who invests their own money into small businesses.
Most angel investors operate alone, while some work together to form a fund, and they can be a great source of capital for your small business. They’re more likely to have a higher risk tolerance than traditional lenders, which can make all the difference when dealing with startups. The key here is to put together a great business plan and a solid pitch. This is so important that there are agencies specializing in just that.
Venture Capitalists
Venture capitalists (VCs) are similar to angel investors in that they are business-minded individuals with funding, looking to invest in small businesses.
However, venture capitalists typically operate as firms rather than individuals and often use other people’s money. These funds have far greater investment power than angel investors, as they invest with pooled money. This means they’re more risk-averse and usually want to invest in more mature and proven companies. VCs may also want more of a say in managing day-to-day operations in your business.
Bonus Tips To Remember When Raising Capital
If you’ve only ever raised your own money for your business, then trying to figure out how to raise outside funds for the first time can be intimidating. Here are a few tips to remember to increase your odds of securing funding for your business:
• Create a strong business plan. This includes everything from your financial figures to your operation strategy, risk management and exit strategy.
• Organize your business material for investors. Create a well-structured business plan that is easy to read. Don’t make an investor go to your website. Create several formats of your business plan (physical paperwork, PowerPoint, video, etc.).
• Center your pitch around your competitive edge. Show investors what makes you different from your competition. Think about your unique selling proposition.
• Focus on investors in your niche. Investors typically work within a niche just like you. Find the investors in your niche and pitch to them.
• Understand what each investor brings to the table. Some investors just loan money, while others help you operate and scale. Know the difference before you accept funding.
And possibly the most important tip is to be persistent. Many, if not most investors won’t respond to you at all. Don’t take it personally. Keep reaching out to investors even if you don’t get any bites. It may sound far-fetched, but the time and effort spent reaching out may literally be the deciding factor for the overall success of your business.
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