How do most small businesses get funding?

As you start your small business, you should be considering your business plan—and within that comes your business budget. You may have ideas, but how do you put those into action? You need the financial backing to even start planning your small business. So how do you get the money to create your new startup?

How do most small businesses get funding?

Most small businesses get funding through personal loans from friends or family or self-funding. Some other ways small businesses get funding include:

• Government grants
• Non-government grants
• Business loans
• Crowdfunding & Angel Investors

There are many options out there for people starting their own small business—and some are much easier than others. Read on to find out more about your options and what you can do to get your small business idea funded.

1. Self-Funding

Because most first-time business owners have trouble getting financial assistance, you may find yourself starting your business from scratch with just your own money.

Ways to supplement that money include talking to your friends and family for loans. Searching for investments within people you know and trust can be a very helpful way to start your business. Make sure to create a plan, including interest and a payback system, before you accept any funds from people you know. An agreement makes it that much easier to complete.

2. Government grants

One of the most reliable—but also most competitive—ways to get funding is through some sort of grant program. While it can be a daunting task to even consider, the payoff can be exponential.

The following are some of the best places to look for government grants, regardless of what you’re looking for:

• Amber Grant and the Women Founders Network are grant opportunities geared towards women entrepreneurs.
• Database of State Incentives for Renewables and Efficiency are grants provided by state governments for small businesses who are attempting to go environmentally friendly.
• gov is a one-stop shop for government grants. Backed by the federal government, this website is managed by the Department of Health and Human Services and provides grant opportunities while making it easier for those small businesses to work in tandem with the federal government. You can filter your search results on this website to find the right grants for you.
• Minority Business Development Agency is focused on helping minority business owners.
• gov: Small business grants can search the System for Award Management website, where businesses register with the government and update their information. This federal government site can allow you to search for government grants both for free and safe from scams. You can also filter your search through the SAM website, allowing you to look for grants specifically for your business type or your demographic.
• Rural Business Enterprise Grant may only be available to those who live in rural areas, but considering one in five Americans live in what is considered a “rural area” you may find yourself eligible for this grant. The U.S. Department of Agriculture monitors this grant opportunity, but applicants do not have to be farm related to receive this grant.
• US Economic Development Assistance Grant program helps small businesses in great economic need to create jobs.
• Local and state governments also often have localized grant opportunities. Consider contacting your local chamber of commerce or development agency to find out where those opportunities lie.

Finding grants is the hardest part of even applying and can take up much of your time. It depends on what you plan to use the money for—certain grants will focus on businesses that are doing something new in their chosen field—or whether you fit a certain demographic. Grants for innovation are usually found through the federal government, while job growth grants typically come from the U.S. Economic Development Administration.

3. Non-government grants

If you do not want to look into grants with any level of government, there are some grants available to small businesses from other larger businesses. FedEX has created their own grant program for small businesses—note that they are competitive, but have a high reward. Another option is National Association for the Self-Employed, which provides monthly grants to those owning and running their own business.

What do you need to know about grant writing process? It does take time—both in applying and waiting for results. Before you even start looking, make sure you know your qualifications and your eligibility. If you have questions, feel free to contact the people in charge—you would have that piece of mind knowing if you were eligible or not, rather than spending time applying only to be disqualified.

Take your time when filling out applications. If your application is incomplete, it is more likely to be thrown out. Be as thorough as you can, especially with the information about how the money would be spent and your contact information. If you’re just starting your small business, that information should also be included in your business plan.

Also note that some grants do carry certain obligations, like reports you must make or tasks you must complete to receive the funding. Understand what you are expected to do if you receive this money. Grants are also a very slow process, so know that if you are going into a grant application needing money as soon as possible.

4. Business loans

While you don’t have to pay back a grant that you receive, you will have to pay back a business loan. Whether you’re looking to get a venture capital loan or a bank loan, it doesn’t matter—make sure you are informed and aware of the fine print before you decide.

The other hard part about receiving a business loan is that you may have to be in business before you do so. If you are just starting out without any successes to share with the financial institution, you may have a difficult time receiving a bank loan. These loans also usually have the highest interest rate for payback, so considering that you could have much lower APRs with other options, this should be your last resort.

What about mortgaging your home for a business loan?

5. Crowdfunding & Angel Investors

Crowdfunding has become wildly popular, especially with businesses that have new and innovative ideas. Using a crowdfunding platform like Kickstarter or GoFundMe can get you the investments you need to start your business. They can make online pledges, but remember—crowdfunding can be very competitive. If you’re looking to do this sort of funding, note that it is wildly variable and can depend on the amount of marketing you do for you and your business.

In some cases, too, you should be aware that this isn’t always free money—you may have to pay this funding back. If you’re looking to crowdfund, be aware of all the fine print before you post your idea online.

When it comes to angel investors, you’ve probably heard this term thrown around before, but it is still an option for your small business, especially at the start. Angel investors are people investing their own money in your business at a very early stage—while there are some loose restrictions, it is a version of the crowdfunding idea, but usually at a higher level. Finding angel investors is something you have to do—and you can do this by finding them at reputable websites such as Gust.com.

No matter where you find your funding, be careful when searching. Grant funding is an easy way for scammers to get your personal information and use it against you. Free money without an extensive application is not free money—it is more likely a scam. Grants will not solicit you, nor will they contact your business; if you think something is a scam, contact the Federal Trade Commission.

Searching for funding can put a strain on your business development, but don’t get discouraged. You have many different options to fund your business—but also be cautious. Make sure all agreements are made in writing, and don’t spend any money before you have received that funding from whatever source you choose. It can be overwhelming finding enough funding to create your small business, but stay focused and organized, and you too can find your way through the small business world to find yourself opening your doors very soon.

Frequently Asked Questions

Where can I get a U.S. Small Business Administration grant?
Contrary to popular belief, the U.S. Small Business Administration does not give out grants to new businesses. Grants are available to non-profit organizations or educational institutions, but the U.S. SBA does not give grants out to smaller businesses. What they do offer is information about existing grants and how to apply for them.

How many grants can I apply for?
There is no limit to the number of grants that you can apply for when it comes to your small business. Some individual grants may have a limit to the number of times you can apply for that specific grant, but otherwise, you can apply to as many different grants as you would like.

Please note that the contents of this blog are for informational and entertainment purposes only and should not be construed as legal advice. Any action taken based on the information provided in this blog is solely at your own risk. Additionally, all images used in this blog are generated under the CC0 license of Creative Commons, which means they are free to use for any purpose without attribution.