How to raise money for a new business?
So, what do you do when you have an amazing business idea, but no money to fund it?
Well, unless your uncle is someone like Warren Buffet then you’re going to have to figure out how to raise capital.
And of course, raising money is one of the biggest challenges any new or established entrepreneur may face.
But spoiler alert: while raising money may seem difficult, there are more ways than ever before to get funding for a business, and getting capital is a lot easier than you may think.
So in this post, we’re going to give you 12 of the biggest ways to raise money for a new business. Keep reading!
Now before we dive in, we just have to mention that this is not direct financial advice.
But if you read until the end, you may find some great ways to raise money for a new business like yours.
12 Ways to Raise Money for a New Business
1. Small Business Grants
We love grants because it’s one of the few ways to raise money completely for free.
You don’t have to pay back a bank, a private investor, and you don’t even have to pay back your mama.
Now let us briefly define what a small business grant is. It is simply a sum of money that is given for a particular purpose.
The two biggest places to get grants are from government agencies or organizations.
Typically, these organizations consist of nonprofits and very large corporations.
For example, many people may not know, but last year Facebook provided $100M in cash grants and ad credits to help small businesses across 30 countries.
They dedicated a percentage of those cash grants to minority-owned businesses that took the hardest hit by the virus.
To be considered for the Facebook grant, all you had to do is:
- Go to the Facebook grant website.
- Complete a digital application.
- Upload documents (which acts as proof for your application).
In fact, that is the same process for most grants.
One important thing to note is that local governments grants and niche organization grants are generally less competitive than state and federal grants.
Check out this list of small business grants post next to see more places you can apply for grants.
However, you should know that many organizations and governments have a cap on how much money is given as a grant either on a total or annual basis.
So it’s important to remember that you are not guaranteed to get one.
Now before we go on to the next one on the way to raise money for a new business, we’re curious, have you ever received a grant or applied to get one?
One of the most frustrating things about applying for grants is that it can take weeks or months before you get any correspondence.
That’s why the next option on our list is business credit cards.
2. Business Card Credits
Now we know this one may seem obvious, but before you skip through this, just hear us out on a few points.
The reason why business credit cards as an option is because you can get approved very quickly.
Sometimes within the same day, as long as you have good personal credit as well. And sometimes speed is important.
When you have a great idea, you want to start working on it immediately, especially while you are motivated and have momentum on your side.
On top of that, if you delay getting started for too long then a competitor or someone else may beat you to the idea.
Now, here are some of the major pros of using business credit cards. So cards like Chase Ink may have special introductory benefits such as:
- 0% interests for 12 months
- Earn cashback on the first $25,000 spent on certain items
- Earn cashback when you spend a certain amount
- Redemption rewards
- Fraud protection
Those are the things that you get with most credit cards…
…and are really important when you are starting a new business and building new relationships with people that you may not fully know yet.
Of course, there are some downsides of business credit cards and they can be risky, especially for new business owners because they have very high-interest rates.
So, you’ll want to make sure that you are making very smart business investment decisions and have the means to pay off the credit when the time comes.
We’ve recently published a post on the best credit cards for bad credit, be sure to read it next.
3. Use Crowdfunding
If you have a strong conviction about your idea and it’s something that’s fresh, new and maybe even a little weird then use the power of the internet to raise the money you need.
Crowdfunding sites like GoFundME have helped thousands of entrepreneurs raise money, get pre-sales and even market test their idea.
Believe it or not, there are many from all over the world who are willing to donate and support your business idea.
You just need to put it out there and make them a sweet offer.
4. Incubators and Accelerator
Incubators and accelerators give startup companies access to many resources that help them get off the ground.
Incubators typically give entrepreneurs physical space, business support, training, and mentoring.
This, of course, is none of those resources that we just named are direct cash, but usually, these are some things that an entrepreneur may spend money on anyway.
For example, a good incubator may have an in-house attorney that can help you with your terms of service.
However, if you are looking for cash, you want to join an accelerator.
Typically, accelerators help companies with seed funding and provide additional resources in exchange for equity.
It’s a bigger commitment for both the entrepreneur and the organization.
5. Angel Investors
These types of investors provide capital in the form of a loan or in exchange for equity in your business.
Many technology companies were funded by angel investors, companies such as Google and Yahoo.
The thing we have noticed about angel investors is that they are rare to come by and are usually found through networking.
On top of that, many angel investors have an unorthodox approach to have they choose their investments.
So, getting an angel goes beyond just having a good business model.
You need some luck too. That being said, if you have a really innovative idea and you have a great business network then this can be a great route for you to take.
6. Bank Loans
Next on our list on how to raise money for a new business are bank loans.
Now the reason why we like bank loans is because the process is really straightforward.
Unlike angel investing, grants, or crowdfunding, as long as you “fit” certain criteria you have a very high chance of securing a business loan.
Now we have a lot of great posts that expand on how to get business loans, grants, and more.
However, if you don’t have an established track record then getting business loans may be a little bit difficult which is why we have the next one on our list.
This tip is exclusive to homeowners so we will be brief. HELOC stands for a Home Equity Line Of Credit.
Essentially, you are able to take equity out of home, convert it into cash, and use it on anything you need.
Typically, the bank is the one who will give you a HELOC which is basically a loan against your home equity.
And the great news is that HELOCs have a super low-interest rate.
Now, we know taking equity out of your home may seem risky to some people…
…but if you have enough conviction and confidence around your business then at the end of the day, your home is a liability and your business can be the asset that pays it off.
Let’s move on to the eighth way to get funding for a business.
We know some of you don’t want to hear it, but here it is.
So what is bootstrapping? It’s basically when you use your own money and the profits from your business to grow instead of seeking outside capital.
We have personally bootstrapped two services-based companies that have gone on to make millions, so we definitely recommend it.
But it does come with some drawbacks.
One of the major drawbacks is speed. You likely will run out of money and you likely will need to be patient until you have enough cash to grow.
For example, if you spend $1,000 on an advertising campaign and you make $3,000 then you have a 3x ROAS or return on ad spend.
So you net $2,000 and things are looking great. You’re ready to blow this up…
…but since you’re bootstrapped, you only have $2,000 that you can spend for next month, and at max that would be a 3x return of $6,000.
Whereas, if you had a $1M ad budget, you can profit $2M on a 3x ROAS.
Hopefully, we didn’t lose you there with all that mat. The bottom line is that when you are bootstrapping you must be patient and disciplined.
But eventually, you’ll have the capital that you need and overwhelming confidence in what you invest in because you have had a lot of small wins throughout the way.
If you want to learn more about bootstrapping, check out our post on how to start a business without money.
9. Friends & Family
Now if you have exhausted your resources or just have friends and family who are enthusiastic about being a part of your new company, then of course that is an option for you.
In fact, we have a friend who raised about $50,000 to start a trampoline park and it was just what he needed to take his business to the next level.
And everyone came out happy with their investment.
10. Product Pre-sales
The first company that comes to mind when we think about this is Tesla.
Before any of their cars hit the market, they put together a solid prototype, a marketing campaign, and started taking pre-orders.
Without a doubt, it helped Tesla to raise the capital needed for production and staff.
Also, if you’re a gamer, you’ve probably noticed some video game companies also take pre-orders.
This in turn helps them to meet the demand of the game and access overall production needs.
So take a page out of their book and offer your customers an option to pre-order your product to raise capital, while also gaining some market insights.
Now when you have a more mature and established company, a great way to raise money is with the next option.
11. Purchase Order Financing
So if you have a business and you have a large volume of product orders coming in…
…but not enough cash to cover the production of products until the payment from the customer comes through.
This is how it works. A purchase order financing company will pay your supplier directly the cost to produce the products.
When products are shipped to your customers, your business will receive payment from the customers.
And that money is used to pay back the purchase order financing company and they of course make interest on the costs of the products until you pay them back.
A purchase order financing company may not be the most affordable way to raise money, but it’s a great option for those who can’t get financing elsewhere.
Now on to our last option on how to raise money for a new business.
12. Strategic Partners
A great business partner could arrive in many different forms.
It can come from a supplier who is willing to give you a credit on your products until you are able to pay them back.
Or it can come from a distributor who really believes in your operating abilities.
It can even come from a customer who believes so much in your mission and values that they are willing to partner with you to grow your business even faster.
One important thing to note is a strategic partner is not necessarily a financial partner.
A strategic partner is someone who can help lift some of the financial burdens that a business may have by providing it for free or at discounted rates.
For example, if your business needs a warehouse to operate from then a strategic partner could be someone who is willing to share a warehouse with you in exchange from some equity.
Now instead of you having to raise money and spend it on a warehouse, you have it for free with an experienced partner too.
Strategic partners can help you get into a great place financially while in the startup phase.
So there you have it! Now before you go out and use all these tips, let us just say this.
There are millions of successful entrepreneurs, including ourselves, who never have to raise money.
And when you raise money, it’s really like a loan and you have a responsibility to pay the money back.
And sometimes if you fail to return the money, the investors can claim your business or any other collateral that you put up.
And when you have an investor or bank to answer to then that can suck some of the enjoyment out of building your business.
Of course, not always, especially if you have nice investors, but you could also have very mean or prudent investors as well.
So keep that in mind when you’re considering raising money.