One of the most common reasons small businesses fail is their lack of funding or capital. Most of us are bootstrappers, meaning you're probably self-
One of the most common reasons small businesses fail is their lack of funding or capital. Most of us are bootstrappers, meaning you’re probably self-funding your business. While we’ll discuss self-funding opportunities, other ways exist to get money for your business. Here are three ways to fund your business on a budget.
Did you know that most people need between $3,000 and $5,000 to start their business? These figures are based on our personal experiences working with business owners.
However, if you don’t believe us, Business News Daily reports, “most microbusinesses cost around $3,000 to start, while most home-based franchises cost $2,000 to $5,000.”
You can get this money through a retirement fund such as your 401K or IRA.
Of course, we’re not encouraging you to dip into your retirement savings for random or frivolous things.
However, if you’re strategic with your retirement savings, you can reap the benefits.
If you’re working in corporate America or another capacity where your company matches your retirement contributions or does profit sharing, that’s an excellent opportunity to leverage the company to start your own.
Bear in mind that there’s a difference between borrowing from your retirement fund and withdrawing. If you withdraw from your retirement fund early, you may be penalized. Before you withdraw from your retirement fund, talk with a tax professional to determine your tax obligations.
Besides retirement benefits, other benefits may be available for you at your company. Take advantage of every opportunity your company has to fund your business or to be able to grow your business.
If you need more clarification on your benefits, contact HR.
Of course, you don’t need to mention that you’re looking to fund your business.
Just find out what they have in store for you.
Family and Friends
If you’ve watched Shark Tank, you will notice many entrepreneurs used their money for business ventures and borrowed from friends and family.
Even though you may not like to ask for help, there is help for you.
When asking for money for your business, explain your business and what you will use it for, and don’t be afraid to show them visuals like a presentation.
You’re also allowed to incentivize your friends and family to give you money for your business.
You can offer to:
- Pay them back the capital
- Pay them back with interest
- Give them a role in your company
Whatever you decide to do, make sure it’s well-documented.
Stephanie Wells from Formidable Forms told Forbes, “It’s best to set terms and conditions that favor and are agreed upon by concerned parties. This is the only way to relay information clearly and set expectations via mutual consensus of the concerned stakeholders. This is something you must do to ensure that your relationships remain intact even when things go south, or the investment doesn’t pay off as planned.”
Besides friends and family, you can ask neighbors, mentors, or anyone in your network.
Remember, closed mouths don’t get fed.
Sponsorship is another way you can get money for your business.
If you’re looking for a sponsor, make sure you have a detailed proposal outlining what you’ll be using the money for and what they’ll get in exchange for their capital.
Besides your proposal, we recommend that you have a formal document, Word document, or PowerPoint presentation where you have information on the overview of your business as well as:
- What you’re doing
- What you’ve been able to accomplish in your business thus far
- Your management and employees/freelancers
- Expansion and growth plans
- Purpose of funds
- Type of support you’re looking for
- How much money you need
Now, you need to consider what kind of incentives you offer your potential sponsor.
You can opt to offer the following:
- A percentage of your profits
- Part-ownership in the company
- Promotion and advertising packages
- A discount on your services
Finally, it’s time to sell yourself.
Once you have a professional presentation, set up a Zoom call and start selling yourself, in the call, you have to be able to discuss financials and more about how sponsoring you will benefit you both.
You may not get the sponsorship opportunity you wanted but improve on your pitch and keep trying.
You may have to go back to the drawing board, retweak your plan, or present something to them that’s more compelling.
If you want to participate in sponsorship marketing, check out our guide.
Bartering is an excellent system for you to get additional support for your business without exchanging currency.
Through bartering, you can offer something you have, such as your skillset, expertise, service, or product, in exchange for whatever you need from the other party.
Just make sure you negotiate the terms of your agreement so that’s a fair exchange.
According to Mail Chimp, when setting up a barter, ensure you:
- Make a list of business assets (this includes your time, products, services, or office space) and determine how much you can give away for free.
- Figure out the value of what you’re offering.
- Figure out what you need most urgently for your business and match it with what’s available for barter.
- Find people or companies to barter with, research them, and then reach out.
- Define your terms in writing.
Not sure what companies are willing to barter with you?
You can ask your network or post on social media to see who reaches out.
In addition, Nicole has a barter black company called Barter Black that helps you partner with other companies willing to barter.
To start bartering on Barter Black, all you have to do is:
- Create a free account to start listing searchable barter offers on the platform
- Set up your freelancer profile and start connecting with others
- Exchange your goods and services
Should I Borrow Money?
You can borrow money to fund your business.
As a matter of fact, you’ll need funding from external sources to get to the next stage of your business. If you’re looking for external sources such as loans and grants, you must have a financial plan for your business.
Unfortunately, we’ve encountered many business owners with unrealistic goals regarding how much they need and what they’re trying to achieve.
For example, they’re asking for $500,000, but after discussing what they’ll need, we realize $20,000 will be enough. We saved them from taking on unnecessary debt.
Many businesses actually fail because of cash flow problems and overextending. Taking out loans or borrowing money is not a problem if you do it correctly and are not overextending yourself.
If you need to fund your business, make a plan. Ensure you know how much money you’ll need and what you need it for. We recommend checking out your options and using various options to get funding.
You can use crowdfunding, grants, business credit, loans, and other forms of funding.
Here are some of our funding resources:
- Grant Tracker
- The Basics of Crowdfunding
- What To Do Before Seeking Funding For Small Business Startups
- Business Startup Budget Calculator
- 3 Ways To Get Funding For Your Business
- 3 Steps to Getting $100,000 in Business Credit
- The Winning Grant Application Cheat Sheet & Checklist
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