How to Fund a Business

“It takes money to make money.” That phrase has been around for decades, indicating that success comes at a cost. If your plan includes starting or building a business, this concept is definitely true, as most business ventures require some capital upfront. As part of our “how-to series for small business owners,” we have a step-by-step guide that outlines how to fund a business.

Whether you’re a newcomer with your first business or looking to expand, this guide offers insights into how to fund a business and move forward with success.

How Much Money Does It Take to Start a Business?

One common question that comes up around the topic of funding a new business venture is the amount needed. Ultimately, the answer depends on various factors.

Location

Your business will need a place to operate, but the location influences the cost of startup. A fully online business may require anywhere from a few hundred dollars (to secure a domain) to several thousand, while a brick-and-mortar location involves paying rent, utilities, and other costs.

Startup costs

Starting a company may also come with some required fees. Examples include any necessary licenses, incorporation fees, and insurance.

Equipment

If your business needs equipment to operate, make sure to consider what it will cost to get it. Certain industries require more advanced, costly equipment, such as manufacturing, healthcare and construction.

Staff

Does your business need employees? If so, the cost of hiring will certainly raise the total you’ll need to get started. SHRM data indicates that bringing on a new hire will cost three to four times the total salary.

According to the U.S. Small Business Administration (SBA), the average cost of a microbusiness is $3,000, while a home-based business might reach $5,000 or more. Choosing to start a brick-and-mortar location could require tens or even hundreds of thousands of dollars to begin.

How to Fund a Business (6 Tips)

With an idea of how much money you need to start your business, check out these tips to secure funding and move forward.

Save up

Self-funding, also called bootstrapping, involves leveraging your own financial resources to get your business started. There are certainly pros and cons of this option. Advantages include maintaining full control over your business and avoiding debt early on. However, you will take on all the risk yourself when self-funding your company, and you may be tempted to tap into your savings accounts (including funds earmarked for retirement), which can impact your financial future.

Look for SBA grants

Although no federal grants are available to start companies, the SBA offers grants to certain qualifying individuals. These include:

• Women
• Minorities
• Native Americans
• Veterans and military spouses
• Members of the LGBTQ community
• Farmers and ranchers

Grant amounts can range from $1,000 to $25,000 or more, and you don’t have to pay the funds back. State grants may also be available in your area, or you could qualify for grants issued by businesses in the community.

Seek support in your community

Since it’s likely that your business will benefit members of your community, seeking support may be a good starting point. Consider who would benefit directly from your company offering goods or services. For example, if you are planning to open a coffee shop, look at the businesses surrounding the area where you want to be. Other business owners could have an interest in your shop opening, as it may draw more traffic to the area.

The SBA also offers low-cost training and support resources, including the opportunity to connect with other business owners in your area. Search the list of network partners to find local help.

Look into loans

The main types of business loans include:

• Personal loans
• Business loans
• Lines of credit
• Credit cards

What you choose depends on your financial situation and how much you need. Of course, you may not qualify for every type of funding available. Startup business owners typically have more trouble qualifying for business loans than the owners of well-established companies, as the risk to the lender is higher.

Check crowdfunding options

Does your business have an audience of people interested in its success? If so, crowdfunding can be a great option to secure funding. This option involves requesting funds from people who have a vested interest in the business idea.

Often, business owners who use crowdfunding platforms offer something in return, such as exclusive access to an event or a piece of merchandise. Some provide equity-based incentives, giving early investors an option to buy into a company they care about.

Bring on investors

Investors can serve as partners in the future of your company’s success. Venture capital investors may take a more active role in the daily business operations, while other investors could choose to step back and simply provide funds in exchange for partial ownership. You may even come across angel investors, a category of people who are wealthy and willing to provide mentoring, support and other resources to business owners.

As you take the next step toward starting or growing your business, these tools can help you get the funds needed to succeed.

Check out some of our additional posts geared toward small business how-to:

• How to Deal with Difficult Customers
• How to Secure Business Insurance
• How to Keep Customers