4 Ways to Get Your Business Funded without Crowdfunding
Coming up with a brilliant idea is often the easiest part of starting a new business. Funding that business... that's when things get real. Crowdfunding has become a popular option for entrepreneurs but the truth is, pulling off a successful crowdfunding campaign requires experience and skill, as well as a serious investment in sweat equity.
If you don't have the bandwidth or feel crowdfunding may not produce sufficient capital, you may need to consider alternate options. Instead of crowdfunding, check out these savvy alternatives to raise money for your business.
Funding idea #1: Microloans
When your small business doesn't qualify for a traditional bank loan, you may be able to get a microloan. A microloan is a short-term, low-interest, small business loan of up to $50,000. Funds can be used for a variety of expenses including working capital, inventory, and equipment.
The U.S. Small Business Administration (SBA) provides the funds but the loans themselves are obtained through intermediaries such as Accion, a company specializing in microloans to businesses owned by women, minorities, veterans, and the disabled, among others. For a complete list of SBA microloan intermediaries by state, click here.
Funding Idea #2: Angel investors
Angel investors are individuals, with a minimum net worth of $1 million and minimum annual income of $200,000, who invest their own money in startups. Angels provide a staggering $25 billion to 70,000 companies each year.
In the past, connecting with an angel investor required either already knowing the right people or having world class networking skills. Today, finding an angel is exponentially easier thanks to the Angel Capital Association. The ACA has a comprehensive member directory and partners with organizations such as Gust Launch, which help connect startups and angels.
Keep in mind, much like the sharks on Shark Tank, angels do require equity in your business. However, that also generally means you'll get an angel's mentorship and support as part of the deal.
Funding Idea #3: Contests
Are you a student with an innovative business idea and a dream? If so, you just might be able to turn that dream into cash by winning a business plan competition. These contests offer cash prizes mostly ranging between $10,000 and $100,000.
There are several business plan competitions held each year (a quick internet search will reveal plenty of listings) but two in particular stand out:
- The oldest and one of the most well known is The Edward L. Kaplan, '71, New Venture Challenge. Touted as, "The #1 University Accelerator Program in the Nation," the challenge has launched over 180 startups that are still in operation, including Braintree and GrubHub.
- Arguably the planet's largest student competition, the Hult Prize may have the toughest challenges (this year's challenge is a call to, "build scalable, sustainable social enterprises that harness the power of energy to transform the lives of 10 million people by 2025") but it also offers the highest reward -- $1 million to entrepreneurs who prove their business has what it takes to make the world a better place.
Funding Idea #4: Grants
While it might seem to fall into the too-good-to-be-true category, you really can get free money by applying and qualifying for a grant. A good place to start your search for federal, state, and regional grants is at Grants.gov. However, be prepared to wade through a barrage of information on a site that isn't exactly user-friendly.
You can also find grants though the U.S. Economic Development Administration (EDA). The EDA's main website can help connect you with your regional EDA, many of which offer funding to local entrepreneurs.
Alternatively, there are several private grant opportunities including grants specifically for minority, veteran, and women-owned businesses. The Amber Grant is one such opportunity that awards $1,000 each month to one woman business owner. At the end of the year, one of the 12 winners is chosen for an additional $9,000 grant. (There is a nominal $15 application fee.)
Should Your Business Forgo Crowdfunding Altogether?
There is no one way to raise money for your business. Crowdfunding has its advantages: just ask Katherine Krug, founder and CEO of BetterBack, who raised over $1 million on Kickstarter. In her interview with Forbes, Krug describes her move away from traditional financing as liberating.
Crowdfunding has allowed Krug to love what she does and stay true to her business vision, rather than please investors. If you think this sounds like a better fit for you, check out this list of amazing crowdfunding sites you've never heard of.
Either way, the important thing to remember is when it comes to funding your business, there are always plenty of options.
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About the author: Holly Layman is a freelance writer based in the greater Los Angeles area. Connect with Holly at hkvlayman.com.