Still taking out a loan from the bank? Look into these lesser-known sources for startup capital for your small business instead!
Now that figure fluctuates depending on the company and industry, but it's still an imposing amount of money to a brand new entrepreneur. There are plenty of traditional ways to raise capital to start your business -- getting a loan from a bank, borrowing money from family, dipping into your savings. But what if you don't want to clear out your bank account, or bother your parents, to get your company up and running? Keep these lesser-known options in mind to help you get started, depending on how much you need.
1) Local 'Economic Development' Groups
Small business is good for the community, and local governments try to encourage small business growth as best as they can. Grant money is even sometimes available, though that is usually reserved for tech firms and other high-growth industries. At the very least, you should be able to take advantage of some local tax breaks, which will help your bottom line. Check out the Office of Economic Development and/or Chamber of Commerce sites for your city, county, and state -- they usually have a handy tool to help you search for programs and incentives.
2) Your Customers
Your customers can be a great source of startup capital if they are willing to pay in advance (Tweet). And that isn't as backwards as it sounds either. Your initial customer base will probably be people who already trust you, or at the very least, know you. As long as you don't push for too much, you can reasonably ask for advanced payment. Service-based businesses will have an easier time with this since they don't have to immediately deliver a product, but if you do sell a product and there is enough interest, you should be able to find some customers willing to wait while you get set up. Just make sure you deliver on your promises, or your company will be dead in the water.
When you first start up, it's a better idea to lease fixed assets like an office or machinery, rather than buy them (Tweet). Yes, it may be more expensive in the long-term, but when you're still getting ready to open you'll need every dollar you can scrape together. You can also negotiate the terms of a lease to lower payments and allow you other ways to make money off of the property. For example, if the property you use has a warehouse that you only need ¼ of, it isn't unreasonable to assume someone else could use the other ¾. Subletting can be complicated -- you need to make sure the terms of your lease allow for it, and you certainly need to cover your tracks in terms of liability - but it's still a good way to make some extra money on the side.
Kickstarter, while definitely a fun site to work with, has kind of made crowdfunding into a joke. Most people don't think of crowdfunding as a legitimate way to raise money -- it's just what people use to resurrect cancelled television shows or buy odd-looking wallets. But crowdfunding is slowly making headway into traditional investment. Before crowdfunding really began to take hold, there were some serious limitations as to who could invest in a company, and how much they were allowed to put in. However, moves made by the SEC back in November could open up crowdfunding by the third quarter of this year. Sites like Crowdfunder offer approved investors a stake in the companies on the site, and Fundable allows companies to choose between giving out rewards or equity (Tweet These Sites). Even if this doesn't seem like a viable option for your startup at the moment, keep an eye on crowdfunding -- when the restrictions begin to lift, that option may be worth a shot.
Most businesses do fine with a loan, but it's never a bad idea to try and lessen the debt you have to take on when starting up. I'm a firm believer in bootstrapping and, with a bit of work and some creativity, it is possible to get a business up and running without much money on hand. You just have to be willing to research alternative sources of funding. Before you take out that loan, see what grants you can apply for, experiment with advanced payment options, free up some money by leasing and, if possible, kick around the idea of crowdfunding. When it comes to running a business, every penny counts!