The funding landscape has changed drastically over the past several years for small businesses. Look at legislation like the Jumpstart Our Business Startups Act (JOBS) and technology making it easier to connect startups with investors. Here are 4 killer sources of small business funding — some new some older — from the folks at bplans.com.
1. Traditional Bank Loan, Backed by the SBA
This still remains the default option for many startups. It avoids much of the stress of going door-to-door to find someone willing to invest in the startup. In 2013, banks lent $29.6 billion, a number that, while slightly lower than previous years, still shows signs that our small business economy is rebuilding itself.
Tips for Success: Whether you’re approved or not for an SBA loan is at the discretion of the bank where you apply. So if you’ve got a longstanding relationship with a bank, that’s your best shot. Be prepared with all the documentation they’ll require, including your business plan, profit and loss statements, proof of personal assets, incorporation documents…essentially anything that proves you’re successful (if you’ve been in business) or have a solid idea and experience to make your startup a success.
Rather than be beholden to venture capitalists or a bank, you open up funding to the public. A good recent example of crowdfunding success is Reading Rainbow. Not every startup will secure 5 times what they asked for (Reading Rainbow’s initial goal was just $1 million, but ended up with $5 million, thanks to its rabid fans.) But if you’ve got a solid and supportive community, this is the way to go.
Tips for Success: Communicate with your crowdfunders often. Invest in good quality videos and a writer if you aren’t up to the task yourself. The more you communicate and the clearer you are, the happier your community will be to help.
3. Angel Investors
If you need $500,00 or less, an angel investor might be ideal. Many tend to invest from their personal funds (as opposed to a venture capitalist who uses his firm’s money). Angels commonly invest in software, manufacturing, telecommunications, and medical technology.
Tips for Success: Be ready to answer questions about your growth, and those answers better involve “high growth.” Angel investors look for companies who can reach $50 million within three to seven years.
4. Venture Capitalists
For larger funds beyond what an angel can provide, there are venture capitalists. Known as the most difficult code to crack, venture capitalists can be a challenge to figure out. Each one has a different priority, and you’ll need to bring your A game.
Tips for Success: Have a flawless pitch deck. Know your business inside and out, and watch Shark Tank to get an idea of the kinds of questions they’ll ask.
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