How Fashion Businesses Get Funding

As it is with any business, it’s important to start considering how you can get your funding before you even put pen to paper. It’s not any different when you’re starting a fashion business. When it comes to getting funding for your fashion business, there are several different avenues you can take—all of which can lead you to your goal.

To get funding for your fashion business, first talk to your friends and family. Next steps include going to crowdfunding platforms such as Kickstarter or GoFundMe, finding an angel investor or a venture capitalist to fund your business, or getting a bank loan or grant.

Much like any small business, there are ways for you to start collecting funds easily and without stress. The best way to do so is by planning ahead. So, what needs to go into your budget, and how much can you expect to be asking people for? What do you need to have planned out before you start asking for funds? Read on to find out more. 

Before You Begin: Start with a Budget

How Fashion Businesses Get Funding.

Before you do any sort of financial planning, it’s important to know exactly what kind of funding you’re going to need. To do that, you’ll need to create a budget. While this is an important document to have when you’re sitting down and creating your business plan, it’s also one of the most important documents to have throughout your business venture—you’ll be using and revising this budget throughout your entire business career. 

The first thing to do is consider what you need. Can you write down every line item you can think of? What options do you have when it comes to funding? How much inventory do you think you will need? These questions not only help you determine your budget, but when you ask investors for money, they will want to know these details—and it’s best to have them on hand. 

So, what goes into your budget that you’ll need to consider? First is simply manufacturing your inventory. Before you start your fashion business, you’ll need to make sure you have something to sell—so budget for this massive part of your business. While the cost varies greatly depending on what you’re producing and what materials you use, along with where you’re getting those items manufactured, if you’re going off a smaller budget, you will need somewhere between $4,000 and $5,000 to begin. 

Next, you’ll need a way to sell these items. A point-of-sale system will allow you to sell your inventory, whether it’s a cash register set up or something linked into your website. Most of the time, this sort of system costs about $500 initially. If you’re selling online, make sure you budget enough to send your clothing out to your buyers, too. 

Next are your insurance and business costs. You’ll need business permits, a certificate of occupancy if you’re taking over a building, federal tax numbers, and more—consult with an attorney on this section, but you can expect about $1,500 for your budget. 

Advertising is your next step. People need to know about your items for you to sell your items, so make sure you budget at least $250 to create your own website. Social media can be free, so lean into those sites to gain a following for a lower price. 

You can’t sell your clothing online or advertise anything without photos, and you need models for your clothing to do so. Spending about $1,500 on a few decent amateurs will get you enough content to start. 

You’ll need to include enough to pay yourself and your staff, so don’t forget to add payroll to your list. This is determined by how much you expect to make in profit, so estimate this based on the rest of your budget. 

If you’re creating a physical store, that needs to be included in your budget—and that cost can easily exceed $50,000. If you’re looking to start an online store, you can typically keep your starting costs around $10,000. 

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How to Get Funding

Now that you have your budget set aside, it’s time to consider your funding options. There is a respected order for you to ask for financial support—but you can jump around that order as you feel necessary. 

  1. Discuss your needs with friends and family. 

The first—and somehow both the easiest and hardest—way to get support to start your business is simply to ask your loved ones. Seek out people that you trust and that have the potential means to invest in your business. In these cases, typically you will have an easier time proving yourself to your loved ones, meaning they are more likely to invest in your business plan. 

Not that no matter how close you are to your loved ones, asking for money can put a strain on your relationships. Consider drawing up a contract like you would with a bank or another financial institution, setting up a pay back plan with interest. You and the other parties are the controlling factors, though, and you can set those terms and timeline to what best suits you. 

  1. Look to crowdfunding platforms. 

More and more businesses are looking to crowdfunding platforms to get enough investments to start their businesses. GoFundMe, Kickstarter, StartEngine or SeedInvest are all great options for businesses looking to gain an investment in their new start up. While there are rules and regulations to each, make sure you read into the terms and conditions before you set up your campaign. 

When you look into this option, be cautious. There are several types of crowdfunding: reward based, debt, and equity. If you want to find something easy to use, debt crowdfunding or peer-to-peer lending is similar to asking a friend or family for help. An investor will look over your application and decide whether to be involved, then enter in an agreement with you. Equity crowdfunding is for large scale asks, but they will own part of your business if you’re successful. Reward based is when you provide something in return to those who invested—this is one of the most common types of crowdfunding right now. 

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  1. Find an angel investor or a venture capitalist. 

You may just think these options are on TV shows like Shark Tank but they actually do exist in the business world. Those who have already made their millions are always looking for great businesses to invest in, and you can find those two if you look hard enough. 

An angel investor is someone who wants equity in your business. They will own part of your business if they invest in it. A venture capitalist, on the other hand, looks to businesses that expect to grow quickly. They will also want to be involved—typically expecting about half of your equity and decision-making power. Be careful when working with these types of people, as if you want to retain the sole decision-making power, you may not want to work with them. 

  1. Get a bank loan or a grant.  
How Fashion Businesses Get Funding.

While this should be the last on your list, you can still take your budget to a bank or credit union to receive a bank loan. The U.S. Small Business Administration also has information when it comes to grant funding—you can use their resources to find out more about what you can receive but note that these tend to be very competitive and hard to get. You can also work through a local bank or credit union, but make sure you have your business plan and budget ready—they will be very critical of your plan and you may even be rejected at first. 

As you work to get the financial capital to start your business, don’t be afraid to work with others in your industry. It doesn’t matter where or how, but the more people you surround yourself with that have more experience than you, the less trouble you may find yourself in—talk to people about their experiences, gain insight, and make sure you either follow or don’t follow in their footsteps. Many have gone before you in starting a business venture, including a fashion business, and many will come after—learn from their mistakes and integrate it into your business plan as you thrive and grow. 

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Frequently Asked Questions

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What is the difference between a grant and a loan?

Funding for your business can come in many forms, and you’ll see words thrown around like ‘grant’ and ‘loan’. A loan is something you need to pay back, usually from an individual or a financial institution. A grant, on the other hand, is granted to you—you don’t have to pay them back. 

Can a fashion business make a profit?

Just like any small business, a fashion business can make a profit with the right planning. Because the markup cost for a piece of clothing is two and a half times its original production price, a manufacturer can make an item for $100 and sell it to a clothing store for $250. That clothing store can then turn around and sell it for $625, making a $375 profit. 

To learn more on how to plan your own fashion business click here!

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.