How to fund small business

How to Fund Your Small Business

This article was updated on 10/27/22.

Funding is important, but different sources may be better for you depending on your business maturity, type of business, and other factors. A lot of businesses from small to very large have used some type of funding to get to where they are today. In this article, we’ll cover incubators & accelerators, loans, lines of credit, grants, and angel investors as well as provide a brief summary of the SBA.

Incubator Programs and Startup Accelerators

Companies such as Dropbox, Reddit, and Twitch all have something in common – they were startups from the business incubator, Y Combinator. Incubator and accelerator programs provide specific services to get a small business started. Some may offer training, office or lab space, networking, marketing, mentoring, or access to angel investors or venture capital. The purpose of an incubator program is to help entrepreneurs by growing and expanding their businesses.

Although a lot of attention is given to technology startups, incubator and accelerator programs also serve many other industries such as manufacturing, medical research, and fashion. You just need to find the right program to fit your business. There are many incubator and accelerator programs located in the United States. To search for a program, go to a search engine such as Google or Bing and type incubator programs plus the name of your city or industry sector. Ideally, search both ways to access as many programs as possible.

Y Combinator

Y Combinator helps startups by investing money and moving them to Silicon Valley where they work with them to refine their ideas to present to investors. When they present their companies, this presentation is made to a hand-picked audience who is ready to invest, somewhat like Shark Tank without the sharks. Y Combinator now offers an online 8-week Start Up Course.

Excelerate Labs

Excelerate Labs touts capital and mentorship at the core of its program. Their accelerator program is exclusive to startup businesses in Chicago, IL. The startups are then mentored to fine-tune their business idea which will be presented at a showcase to investors.

Innovation Fund America Funding technology startups, Innovation Fund America is an option for those interested in creating jobs in their own communities. The fund does not take any equity from the startups. In exchange, the start-ups are expected to give back to the fund in the amount awarded to them so the fund can make additional investments. If an entrepreneur isn’t awarded funds they are helped by the organization to improve their business idea and re-apply. They have 4 funding hubs located in Ohio, North Carolina, California, and Michigan

Crowdsourcing

Crowdsourcing is engaging a group for a common goal. Crowdsourcing is a leading nontraditional funding source by which a start-up company can ask for donations to start a business. If a person has a wide net of connections real to virtual, such as social media connections, this can be done quite effectively and quickly. Sometimes referred to as crowdfunding, there are companies you can hire to consult and teach you how to utilize crowdsourcing.

Kickstarter Launched in 2009, and has had over 70 million backers, several billion dollars pledged, and over 200,000 projects funded since inception. Campaigns set a funding goal and timeframe – if it isn’t reached the money is returned to investors. It is mainly used for creative projects.

Indiegogo Although similar to Kickstarter, Indiegogo offers more campaign categories and has campaigns in over 200 countries. They offer multiple funding models that allow the campaign to continue to raise money after a goal has been met-or to keep funds if the goal isn’t met. Indiegogo seems to lean toward new technology and design.

Quirky This platform is for invention and ideas. Users submit an idea to the community, who in turn help refine it for a piece of the profit. It has over 1.3 million members and over 11 million dollars in community payouts.

Fundable Made for businesses and business ideas, Fundable offers some different funding options such as allowing funds to be raised in exchange for company equity. This might be a better option if you aren’t just looking for a reward-based campaign.

Loans, Lines of Credit, & Factoring

Business credit that is not tied to your personal credit.Kabbage Applying for a small business line of credit with Kabbage takes only a few minutes and you pay only for the money that you use. Generally, money can be accessed very quickly once approved. However, they do have minimum requirements such as at least one year or more in business and at least $3000 in monthly revenue. Kabbage terms are between 6 – 18 months. Kabbage is now part of the American Express Merchant system.

PayPal Working Capital The PayPal Working Capital loan does not require any credit check and is instead based on your PayPal receipts. Loan amounts start at $1000 and go up to $150,000 for first-time borrowers. After an online application, it takes only a few minutes to get approval and receive your money.

RapidAdvance is now Rapid Finance  Founded in 2005, Rapid Finance has supported American small businesses nationwide with financing and loans to the tune of $3 billion dollars. They have a quick approval process that notifies you within hours.

Some of the different options for you to choose from include small business loans, lines of credit, and merchant cash advances. In addition to these options, they have bridge loan options, invoice factoring, commercial real estate loans, and asset loans. Upon applying, Rapid Finance will send you a quote for financing costs based on several factors including the amount you requested, business size, industry, etc.
Rapid Finance has strong reviews on both the Better Business Bureau and Trust Pilot.

Small Business Administration Founded in 1953 the U.S. Small Business Administration has a goal of helping American small businesses with loans, contracts, and consultation. The SBA programs include those for women, minorities, and veterans.

Unfortunately, the SBA has not been reauthorized in many years. The Covid-19 Pandemic really shook the tree at the roots with the huge influx of Paycheck Protection Program (PPP Loans) applications. Now, many business owners feel the program needs some updates to fit the post-pandemic landscape. As of the writing of this article, there is proposed bipartisan legislation. Below are articles to explain what that reauthorization would mean to small businesses.

How reauthorizing the SBA would impact women-owned businesses and micro-loan programs.

STEP Improvement Act HR 8844. 

Business Grants

Grants are funds that are awarded to your business or nonprofit based on specific criteria set by the funder. Some are location specific or for minority, women, or veterans. While others are for micro-businesses or industry-specific. Some grants have stipulations on how you use the money, for example it may require that the grant create jobs. Others have no requirements as long as the funds are used to grow and expand your business. Below you’ll see a few that you may want to check out as well as sites that serve as databases for grants.

Women’s Impact Fund This fund gives grants to meet community needs that maximize women’s leadership in philanthropy. They award grants ranging from $40,000-$100,000. WIF has helped 100 organizations with grants totaling over 7 million dollars. Recipients are required to be located and providing services in Mecklenburg County North Carolina, qualifying as nonprofit as designated by the IRS to apply for a grant. Grants are awarded in the following areas: environment, arts & culture, education, health, and human services.

Grants.gov This is a comprehensive list of grants. You’ll get an overload of information here, so be prepared to do a search or two to narrow down the grant options to ones that you may qualify for.

Grant Watch Unlike Grants.gov, the Grant Watch website is more user friendly. You will still need to do a search for the criteria that fits your eligibility. There are options on the home page to view grants by location, newest, and grant alerts. They can also connect you to grant writers, though this is a paid service.

FedEx Small Business Grant Contest Since 2012, FedEx has awarded more than 1.5 million to over 100 small businesses. Grant winners are announced in the spring. You must have a FedEx shipping account and have a product that has been in the market for at least 6 months.

Freed Fellowship Grant This is an excellent opportunity for under represented entrepreneurs as well as emerging entrepreneurs. The Freed Fellowship Grant is an award of $500 each month to a different entrepreneur. This is a great boost for a new business when it comes to trying to get your feet off the ground.

Angel Investors

Olivia Jaras podcast talks about Angel Investors and other ways to fund yoru business.Angel Investors are private investors or seed investors. They are individuals that will provide money to a new business. Often the funds are provided in exchange for equity in the company. An Angel Investor normally looks for a company that is beyond the startup phase and is already making revenue, though needs capital to develop a product or to propel their business to the next level. Some Angel Investors have joined organizations or networks to pool their money. Angel Investors have different criteria they expect from a business. They normally look at several areas such as the management team, market opportunity, finances, growth potential, technology, and competitive advantage. There must also be an exit strategy in place. It is important to know the operational strategy and steps of how you will achieve an exit plan before you seek an Angel Investor.

Many investors are looking for ten to twenty times their initial investment depending on how risky it is.  Usually, an investment ranges between $100,000-$1,000,000. It is typical that an Angel Investor meets the Securities and Exchange Commision’s (SEC) definition of an accredited investor by having a net worth of $1,000,000 and earn at least $200,000 a year. We’ve assembled some resources for you.

AngelList  AngelList connects companies with investors. You can search by country, state, or city and it shows investors and how many investments each Angel has made. AngelList handles fund admin, regulatory compliance, as well as taxes.

Angel Investment Network This site connects entrepreneurs and angel investors. Sign up online and submit a proposal using their Pitch Template and get connected to Angels.

Angel Capital Association Although the Angel Capital Association does not directly provide funds, they provide a directory of their regions with active angel groups, organizations, and investors. Their mission is to support the investors through education and community. It might be worth your time to research their knowledge base articles.

MicroVentures MicroVentures typically invests in companies that need between $150,000 and $1,000,000 in capital. Their primary areas of investment are internet technology, media and entertainment, software, mobile, social, gaming, and green technology but they will invest in other areas as well. Some of their well-known portfolio offerings include Facebook, Twitter, Uber, Airbnb, and Slack.

In conclusion, we have tried to bring you some of the best and most relevant resources that you may need at different stages of your company. Knowing what resources are out there is just as important as being prepared. If you like the resources and podcasts in this article, you can find more small business resources on our Nurture Small Business podcast.