You may want to start a small business to turn your hobbies into a source of income. You can invest personal savings or ask your family for funds to launch your business idea. But what happens when your side hustle’s performance exceeds your expectations? Then you would need to secure funding for small business growth.
Sources of Funding for Small Businesses
When it comes to business financing, entrepreneurs have no shortage of options. Let’s take a quick look at some common options and then decide which funding options can work for you.
Small Business Loans
Small business loans are tried and tested methods to get more money. You can apply for loan programs to grow and expand your venture.
Traditional Loans
Looking for funding for small businesses? Then a traditional loan is the primary option.
Banks and financial institutions offer loans to business owners. You need to maintain a good credit score and a good credit history. This way, you can qualify for the loan on easier terms with a lower interest rate. Further, you may need to provide tangible assets as collateral for the guarantee.
SBA-Guaranteed Loans
If your business is new or you don’t qualify for traditional loans, you can look into SBA-guaranteed loans.
The US Small Business Administration offers a federal guarantee on your loan. So, it reduces the risk for lenders. Also, since your business is backed by SBA, you can get the loan on favorable conditions.
Crowdfunding
With crowdfunding, you can raise capital to grow your business. Crowdfunding platforms connect you with large pools of individuals. You can pitch your business idea and share current business performance with them. They will invest in your business when satisfied.
Another benefit of this approach is that it can help you reach a global audience. You can showcase your products and gain backers and supporters.
There are two main types of crowdfunding: reward-based and equity-based.
With reward-based equity, investors support you by prepurchasing your products. On the other hand, equity crowdfunding offers small equity/ownership to investors. So, you can get investments without losing control of your business.
You can find several reputable crowdfunding platforms online. Kickstarter, Patreon, Crowd Supply, and StartEngine are among the best crowdfunding platforms of 2024.
Business Credit Cards
For short-term business loans, credit cards can be a good option. But make sure you don’t use your personal credit card for business transactions.
Business credit cards provide you with fast access to funds. You can review and track expenses. And you can earn rewards and cashback with your card. With effective use of your card, you can build your business credit score too.
However, if you plan to use this option to secure funding for your small business, it’s important to manage your credit card expenses to reduce the interest.
Small Business Grants
Small business grants support aspiring small business owners.
Government as well as some private institutions award financial support. The criteria are quite strict for these grants. So, you need to do thorough research and carefully choose grants for which your business can qualify.
Unlike loans, you don’t have to repay this amount. Thus, the competition is fierce.
Grant programs by the National Association for the Self-employed, Nav, and SBIR can help you secure funds for your side hustle.
Additionally, you should check out the small business growth fund. SBGF assists emerging businesses in meeting their financial needs. With grants of $5,000-$25,000, you can accelerate your business growth without worrying about returning funds.
Third-Party Investments
As your business gains traction, you may think about expanding its operations. For instance, you may start a physical location to sell products you used to sell online. Or you may want to introduce a new range of products for your customers.
For this purpose, you can reach out to third-party investors.
Investors
Investors can be individuals or businesses. They can provide you with funds in exchange for equity ownership.
Venture Capitalists
Venture capitalists are experts and bring more than just money to the table. They can provide mentorship and guidance about the best use of funds.
Angel Investors
Angel investors are wealthy individuals who support small businesses. They will invest their personal funds once you convince them with your business idea. Moreover, they can also support you in the long run with hands-on mentorship.
Preparing for Additional Funding
Whether you want to apply for a loan or grant, you need to make them feel confident their investment won’t go to waste. So, convince them that your business is doing well and earn their trust.
Before applying for a loan or financial assistance, it’s important to prepare well. This will help you make a good impression and secure more funding with ease.
So, start off by writing a good business plan. This comprehensive document should present your vision, goals, and business structure. The document should include financial projections along with information about your products/services, market, customers, and competitors. When you reach out to lenders or potential investors, your business plan will help make a strong statement.
Next, you need to organize your financial statements. Make sure you have up-to-date financial records including balance sheets, income statements, and cash flow statements. It’s also a good idea to prepare financial projections to give investors an idea about expected ROIs.
Now that you have business documents ready, it’s time to determine your funding needs. You should be clear about your capital needs and where you intend to spend the amount. With this information, you can identify funding sources that will work best for you.
Securing Funding
As a small business owner, it’s often a challenge to get more funds for your business. But if you have a strong network, you can clear this obstacle without hassles.
Thus, focus on networking from day one of launching your side hustle. When you need investments or loans, they can guide you. For instance, they may provide a guarantee to help you secure a bank loan. Or they can help you connect with potential investors.
While your network can help you identify funding opportunities, it’s up to you to make the most of these opportunities. So, if you intend to attract investors, prepare a convincing pitch.
Your pitch should convey your business idea, market opportunity, and competitive advantage. Also, practice delivering your pitch with confidence. When you fully understand your business model and pitch, you can answer even the most difficult questions and address the concerns of investors.