Acquiring funding for new businesses in 2022 and beyond requires that you understand all the options available. Which one(s) you ultimately choose depends on your needs and the stage of your business.
This in-depth guide will evaluate the 7 best small business funding options so that you can make an informed decision about your company’s financial future.
Perhaps the best way to find funding for new businesses? Bootstrap! This term refers to “pulling yourself up by your bootstraps,” meaning you get everything done yourself based on the resources you have.
Bootstrapping has many advantages, including not taking on debt or relying on others for funding. That said, this won’t be possible for everyone. Depending on your personal assets as compared to the funding needs of your business, as well as the stage of your business, you may need to seek funding elsewhere.
Before you consider bank loans, ask yourself the following:
When seeking funding for new businesses, it can be difficult to acquire bank loans, especially large ones. The bank usually needs a combination of collateral and a strong credit score. The former is in case of emergency and allows the bank to recoup what they lent, and the latter is to establish that you have a history of being financially responsible and paying off your debts.
Even if you aren’t a perfect match for a traditional bank loan, consider speaking with a lender to see your options.
Depending on the country you’re in, you can apply for government loans when funding new businesses. Entrepreneurs can acquire US small business funding from the Small Business Administration. Entrepreneurs in Canada can obtain similar funding from The Canada Small Business Financing Program.
Government loans tend to offer many options and allocate different amounts of capital. If you don’t meet the stringent criteria required for a bank loan, government loans may be better for your small business funding.
While government loans are typically easier to get your hands on, you’ll still need a solid credit score and strong annual revenue. And, as with most government processes, there’s a lot of paperwork!
Related: 11 Bookkeeping Tips for Small Businesses to Ensure Success in 2022
This option for acquiring funding for new businesses also depends on where your business resides. The advantage of business grants? You don’t pay interest, meaning it’s free money.
That’s great, right? Sure, but the downside is this means everyone is trying to get their hands on grants. Business grants are notoriously competitive, and you’ll have to spend a lot of time applying and finding ones you qualify for, but the payoff could be worth it.
Most federal small business grants are aimed at offering funding for new businesses that meet specific criteria. This can include nonprofits, different types of founders, or government corporations. That’s why you may need to spend some time finding the proper grants for you and your company.
Learn more about Canadian government grant options (and other financings). If you’re in the US, click here instead.
Crowdfunding is a particularly insightful way to acquire funding for new businesses. This small business funding method allows you to test market interest. Crowdfunding takes place online and is usually used to fund a specific product launch.
While this method can be time-consuming, you can use crowdfunding to test your idea if you aren’t sure how well-received it will be.
If lots of people offer money, it means there’s demand for your product. Conversely, if you struggle to acquire funds through this method, it may mean there isn’t a market fit for your product. This can be an insightful piece of information if you haven’t tested product-market fit yet.
When it comes to acquiring funding for new businesses, entrepreneurs looking for a more personal touch should consider credit union funding. Credit unions usually require membership for those seeking funding. Although this may feel like a hassle, it means you enjoy the benefits of a personal touch and recognition when you visit your local branch.
According to the Consumer Financial Protection Bureau, the number of credit unions in the US that offer small business funding options doubled between 2004 and 2020. That means there are plenty of options if you want to acquire funding for new businesses through credit unions.
Consider asking family and friends if you don’t want to get tied up in paperwork or need funding for a new business immediately. However, be cautious with this approach. Only ask people you have a strong relationship with, and make sure you’re 100% committed to paying them back. When lending money gets involved, relationships can quickly turn sour.
Asking friends and family should be somewhat of a last resort for small business funding options.
Sometimes, loans, grants, bootstrapping, or any of the above just won’t work. Whether it’s because you need funding fast, are worried about falling into debt, or have no friends to turn to, some small business owners need another option.
Rayl.Financial will soon be offering a fast, flexible, and fair way for entrepreneurs to acquire funding for new businesses. Once this goes live, SMB owners will be able to sign up and get approved for financing within minutes. Learn more today!
Related: Your Step-by-Step Guide to Successful Small Business Budgeting in 2022
