If your small business is in need of capital, it’s not the only one. In 2019, 43% of small businesses applied for a loan, and yet only 48% had their financing needs met.
So, if you’re one of the 56% of small businesses in need of funding to expand, pursue a new opportunity, or acquire assets, don’t worry. There are some creative ways you can go about raising money in 2021.
12 Ways to Raise Capital for Small Businesses in 2021
Depending on your goals and specific situation, there are a number of innovative ways to raise capital as a small business.
1. Bootstrap It
The term “bootstrapping it” refers to starting a business with only your personal savings and, with any luck, the cash coming in from your first sales.
This is a great way to start your business if it’s doable because it allows you to go into your venture debt-free.
But in many cases, it’s not feasible due to the amount of start-up and overhead costs you might incur, particularly if you’re selling goods rather than services.
And if you’re already in business, the only way to go about bootstrapping it is to have a second source of income that you use to fuel your new company.
2. Launch a Crowdfunding Campaign
The rise of technology has made capital more accessible for small businesses than ever before. And crowdfunding is an incredible example of this.
Crowdfunding is the process of raising money from a large number of people in order to fund a project, a company, or a cause. In some cases, the funders do so as an altruistic donation, while in other cases, they get rewards, equity in the company that raised the money, and more.
3. Look Into Microloans
Depending on how much money you need, a microloan might be a great option for you.
Microloans are small sums of money lent at low interest rates to new businesses. While traditionally offered to non-profit organizations, they’re more frequently being given to small businesses as well.
For example, the U.S. Small Business Administration has a Microloan Program that provides loans of up to $50,000 to help small businesses and certain not-for-profit childcare centers start up and expand. The average microloan is about $13,000.
4. Apply for a Traditional Loan
While new ways of raising capital are becoming more common, traditional financing products are still the most frequently used funding vessels for small businesses. In fact, nearly 75% of financing for new firms comes from business loans, credit cards, and lines of credit.
If you plan to apply for a loan from the government or a financial institution, you’ll want to make sure you meet the following requirements:
- You’ve been in business for 2+ years
- Your business has strong annual revenues (typically at least $100,000)
- You have a good credit score (generally 640+)
It’s also wise to make sure you prepare any loan documents you’ll need to show ahead of time and be ready to show profit and loss statements, balance sheets, tax returns, and bank statements (both personal and business).
5. Tap Into Friends and Family
There’s no doubt about it: your friends and family want to see you succeed. And because of that, they may be more willing to invest in your business and support you financially.
That being said, this can get sticky, so make sure you’ve thoroughly weighed all the pros and cons, risks and benefits, and potential outcomes (both good and bad!) before opting to go down this road.
6. Contact the Small Business Administration (SBA)
Beyond just microloans, the U.S. Small Business Administration has a vested interest in supporting the success of small businesses.
After all, there are nearly 27 million small businesses in the United States and they generate about 50% of our GDP, as well as contribute to other important areas of economic and socio-economic development.
You can explore all of the funding opportunities offered by the SBA by clicking here.
7. Seek an Angel Investor
Angel investors (also known as private investors, seed investors, or angel funders) are high-net-worth individuals who provide financial backing for small startups or entrepreneurs, typically in exchange for ownership equity in the company.
By definition, angel investors typically have a net worth exceeding $1 million or an annual income of more than $200,000. They usually operate alone but may team up with other angel investors and form a fund.
Before seeking an angel investor, make sure to have the following:
- A strong business plan
- A great pitch
- Promising data points about your company’s current and future potential
8. Run a Contest
Depending on what industry you’re in, you can look into opportunities with organizations that offer monetary rewards or even financing for businesses and entrepreneurs who enter their contests.
It’s not a sure thing that this will apply to your business and it’s a safe bet that eligibility requirements, entry feeds, and judging criteria will vary vastly.
But it’s certainly worth doing some research into what’s available.
9. Offer Pre-Sales
This method of raising capital isn’t for the faint-hearted because it can put entrepreneurs into a high-pressure situation, but if your business is based on selling a single product, you can offer pre-orders that allow you to raise money in advance.
This has a number of benefits, including:
- Allowing you to raise manufacturing funds before actually taking on the costs
- Avoiding overproduction and warehousing costs by producing only what you need (and maybe a little bit extra)
- Providing some pressure to follow through since consumers are relying on you to do so
This can definitely be a daunting proposition so make sure you’re ready for it before you go down this route. But when done correctly, it’s a great way to raise capital.
10. Capital for Minority, Underserved, Veteran, and Women-Owned Businesses
The U.S. Small Business Administration offers support for minority, underserved, veteran, and women-owned businesses. For more information on what’s available and how to apply for it, click here.
11. Economic Injury Disaster Loan
In the midst of the pandemic, many businesses are hurting. For those businesses, an Economic Injury Disaster Loan may help. It’s a long-term, direct loan from the U.S. Small Business Administration. The Targeted EIDL Advance is an emergency grant that provides working capital to businesses and nonprofits located in a low-income community, that suffered a reduction in revenue of greater than 30%, and have 300 or fewer employees.
For full details, check out this document from the SBA.
12. Maryland Small Business COVID-19 Emergency Relief Grant Fund
The Maryland Department of Commerce is also offering financial support for small businesses in the midst of the COVID-19 pandemic. This COVID-19 Emergency Relief $50M Grant Fund offers working capital to assist Maryland small businesses and nonprofits with disrupted operations due to COVID-19. Grant assistance is intended to provide interim relief complementing actions with its bank, business interruption insurance, and financial partners.
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