How to Raise Money for a Business

One of the biggest challenges when starting or growing a business is putting together money for materials, marketing, or labor. When your business is newer, it can be hard to get funding, since lenders often want to see a track record of success before extending a loan. 

But when you're starting or running a growing business, you might need a financial boost to keep operations running smoothly and scale. Instead of seeking out traditional lenders, here are some common ways to raise money for a business and how to choose the right one for you.

When to seek out funding for your business

Determining when and how to raise money for a business is unique. Businesses need funding for different reasons depending on where they are in the growth process.

• You need seed money to get started. Every new business has crucial initial expenses. A screenprinting company needs materials like blank T-shirts, while a writer might hire a graphic designer to work on newsletter and website branding. Seed money can pay for these things.

• You haven't started generating revenue yet. Once you start to have money coming in, you can direct any profits back into your business. But you won't start generating revenue right away, so additional funding can be a good bridge solution to keep your business going. 

• You need capital to manufacture a product. Business owners that sell tangible goods need a partner to bring these ideas to life. For example, a purse designer needs a manufacturer to produce their product, which costs money on top of materials. 

• You have bigger business expenses. Typically, you'll launch a business with your own existing equipment. After your business starts to grow, you might discover you need a nicer camera to photograph merchandise or a faster computer to handle operations. 

• You can't grow without additional funding. A business might reach the point where they can't scale without raising extra money. For example, you want to hire a freelancer to help with marketing or shipping products or your expenses might be growing faster than anticipated.

6 ways to raise money for a small business

Small business owners have multiple funding options from which to choose, all of which have pros and cons. Keep in mind that you may have a harder time getting a traditional loan if you’re just starting out. If you plan to find outside sources of funding, you may benefit from creating a business plan and financial summary to build trust and confidence with your supporters.

1. Bootstrap with personal income or savings

Many people choose to fund their initial business activities via bootstrapping. That means you don't seek outside money, like investors or loans. Instead, you launch the business with your own money. 

Assuming you have the income or savings to put toward it, this is a simpler funding style because you won't owe money to anybody else. Bootstrapping is often the best option while testing the viability of your business, especially since you can be nimble and control every decision you make. 

However, bootstrapping isn't the right option for everybody. You might not have extra money to contribute or feel comfortable using your savings for something that's not a sure bet. If you do decide to bootstrap, limit how much of your own money you're going to invest upfront. 

2. Ask friends and family

Your friends or family members might be willing to help fund your small business in the form of a monetary gift or loan. In certain cases, a family member might also co-sign a loan.

Knowing your investors personally can provide peace of mind, especially because they can be more flexible on repayment timing and likely won’t charge interest. 

That said, mixing financial deals with personal relationships can cause friction if the business isn't a success. It can also be stressful knowing that you owe money to a friend or loved one, especially since you don't want to let them down. Set clear boundaries around business talk and put your agreement in writing for everyone’s sake.

3. Crowdfunding

Crowdfunding campaigns are one of the most common ways to raise money for business expenses or operations. 

With these campaigns, supporters can give money toward a specific cause, such as helping you buy a piece of equipment. Other campaigns involve donating a specific amount of money in exchange for goods or services. If your business produces tangible goods or products, crowdfunding can also function like a pre-order window. 

Crowdfunding offers an easy way to promote your business and create brand awareness. It can also be a great way to build a loyal customer base. For example, your crowdfunding tiers can include exclusive items or perks.

You can launch a crowdfunding campaign on your website with a donation block, which you can customize to your fundraising goals. It's also easy to fundraise on your social media accounts by creating a crowdfunding section for your Bio Site. These can be one-off campaigns with discrete goals or an ongoing campaign that you update periodically as you reach funding milestones. 

Make sure you have an accurate estimate of costs and time to follow through on a campaign. Not delivering on the goal of your crowdfunding campaign can damage your business and brand.

Get more tips for asking for donations online

4. Grants

Grants are monetary awards that you don't need to pay back, similar to scholarships. Small business grants are available through local chambers of commerce, state organizations and even global corporations. Grants are also available to certain groups of people, such as artists living with disabilities, or earmarked specifically for minority- and women-owned businesses.

Grants are an appealing choice for early stage business owners because the money is yours to keep no matter what happens. This money also offers less risk because the grantees aren't expecting repayment.

That said, grants come with some extra responsibilities. Although websites like grants.gov offer a searchable database of grants, researching, identifying, and applying to awards you're eligible for can take time. Some grants also require awardees to provide periodic reports on their results.

5. Small business loans

Small business loans are a form of debt financing, where you borrow a certain amount of money that's paid back at a later date. Banks typically offer loans to small business owners who meet certain requirements.

Your local or government small business association, like the Small Business Association in the U.S., can be another good resource. In the U.S., the SBA offers loans of varying amounts in addition to providing information and connections to grants, investors, and community organizations. You can also make an appointment to talk one-on-one with a representative and go over options.

You need to pay loans back, most often with interest, so bank requirements can be strict. Many require you to be in business for at least two years, have a good credit score, and show strong financials to qualify. This kind of funding is best for established businesses that have steady revenue.

6. Angel investment and venture capital

Angel investments and venture capital are generally reserved for startup businesses with significant growth opportunities or the potential to go public on the stock market. Raising venture capital is a complicated process that involves seeking out investors and making formal presentations that sell your business.

Venture capital might be a viable option once your business has matured. You could be ready if your business is making large revenues and has the potential to turn significant profits, but needs partners or funding to cross that threshold. You'll also need to have extensive budget forecasts, and a solid business plan and marketing strategy in place.

Venture capital deals offer significant funds but often require businesses to give up control. For example, some investors receive significant shares of equity or might ask for a seat (or seats) on a board. 

How much funding can you ask for?

The amount of funding you pursue depends on your business. Some grants and loans are only available to businesses of a certain size or type. Banks limit the loan amounts they offer.

Just because you can ask for a certain amount of money doesn't mean you should make that ask. You want to take on a realistic amount of debt so you can pay it back without creating financial issues for you or your business.

Create short- and long-term budgets and business forecasts before pursuing funding. Having this information can help you make an informed decision about the money you need and when you can pay it back.

Learn how to manage your business finances

How to choose the right funding option for your business

Choosing the right funding option for your business comes down to several factors.

• Whether you've tested the viability of your business: If you're still in the idea stage of a business, you might want to do market research before attempting to raise significant money. At this stage, using some of your own money is often the best option.

• If you want your business to be a full-time endeavor: If you're hoping to scale this business into a full-time endeavor one day, slow and steady is a good strategy. Start with personal money and explore other funding options once your business starts growing.

• Your comfort level with carrying debt: People who are more risk-averse or in the early stages of building their business might opt for funding that doesn't require repayment.

• Your financial need: If your business doesn't need significant capital, then seeking out grants or zero-debt financing might be the most cost-effective options. 

• Whether your business is generating revenue: If you already have money coming in, your financial needs will be different from other businesses. You might be a better candidate for a loan because you have the funds to pay it back.

Your network can also be a good resource for discussions about funding. Talking to other business owners about their own experiences can be a valuable way to discover unexpected funding sources or things to avoid.

Zero-debt vs. debt financing

As you're looking at funding options, you'll also want to decide whether you want to take on debt. Your options can be split into zero-debt or debt financing.

• Zero-debt financing is a broad term to describe an investment that doesn't require you to owe money to another entity, whether a company or a person. This includes bootstrapping and crowdfunding.

• Debt financing means that you're taking on debt, or borrowing money, that you eventually need to pay back. Types of common debt financing include loans or money from an investor.

Zero-debt financing is often a good choice for new business owners. But once businesses are more established, zero-debt financing can become more sophisticated and come with more responsibilities. For example, venture capital investors provide funds in exchange for equity in a company. 

Pursuing debt financing is a big decision. Loans accrue interest over time, so you'll be paying back more than you borrowed. A loan also often comes with a specific timetable for repayment. Because of these factors, debt financing is often better to take on once your business is off the ground and generating revenue.