Most small business owners are constantly looking for ways to improve their business and grow their sales.
If you are a small business owner, it’s likely that you started your business because of passion and the desire to work for yourself and build something great.
But one of the biggest challenges you might face is accessing the capital required to grow your business. It’s often impossible to grow without spending money and to spend money you often need to figure out the best way to fund your growth.
So, where do you start?
Develop a strategic growth plan—a business plan
The first step is to make sure you have put together a strategic growth plan. Basically, this is just a business plan but focused on the strategies you need to implement to grow your business.
You will want to make sure that you include a financial forecast that helps you understand how much money you actually need to fund your growth, based on your projections.
When your plan is finished, you will not only have a great tool for managing your company, but also for getting the funding you need to grow your business. Whether you’re running a small home-based business, or a large biotechnology company, if you need to seek funding, you’re going to need to present a professional, well-organized plan with realistic financials.
If you’re using LivePlan, you can feel confident that you’re on track to put together an investor-ready and loan-ready business plan. Our customers have secured hundreds of millions of dollars in investment capital and small business loans over the years—and we want to help you secure the funding you need to grow your business.
Consider the different ways you can fund and grow your business:
- Bank loans
- SBA-backed loans
- Friends and family financing
- Angel investors
- Venture capitalists
To bootstrap your business simply means you finance your business with your own funds, through your own savings, personal loans, SBA-backed loans or credit lines, or with credit cards. Read on for more about loans in the next sections.
When you bootstrap, you’re not giving up any ownership or equity in your company, the way you would if you took angel investment or venture capital.
Bootstrapping also means that you will need to start producing revenue for your business as quickly as possible to continue to fund the business on your own.
The benefit of bootstrapping is that you retain complete control and ownership over your business. Often this looks like moonlighting and working on your idea on the side while still holding down a regular job. Palo Alto Software was actually bootstrapped by our founder, Tim Berry.
A bank loan provides medium- or long-term finance. The bank sets the fixed period over which the loan is provided (ex: 3, 5 or 10 years), the rate of interest, and the timing and amount of repayments.
In addition to your business plan, the bank will require that you provide some security (“collateral) for the loan, although in the case of a startup, this security often comes in the form of personal guarantees provided by the entrepreneur.
Check out this Inc. article on 5 Tips for Using Collateral to Secure a Small Business Loan for more.
SBA-backed loans (U.S.)
The Small Business Association in the U.S. offers a few different loan programs through participating banks across the country. The SBA itself doesn’t actually do the lending—you’ll still need to strike up a relationship with a loan officer at your local bank, credit union, or nonprofit financial intermediary to access the programs.
If you are looking to get an SBA-backed loan, you should think about working with your local SBDC (Small Business Development Center) office. SBDCs receive state and federal funding to help you for free. To take advantage of their expertise, find your closest SBDC office here, and check out Bplans’ guide to small business loans.
Friends and family financing
Friends and family financing is when you receive funding from members of your family or your social network. The money can be in the form of a loan, or in exchange for equity.
But, keep in mind: Taking money from friends and family can be tricky and emotional.
Providing your family with your strategic growth plan—your business plan—so that they can see that you are being thoughtful about your growth can be a great first step. We highly recommend you seek legal advice to help you and your family or friends set up your business arrangement for success from the outset. There is nothing worse than family and friends fighting regarding money and business.
Crowdfunding is when you ask a crowd of people to donate a defined amount of money for a specific cause or project in exchange for various rewards. The three general categories crowdfunding can fall under are equity, donation, and debt.
Read this Investopedia article for an overview of four crowdfunding websites. They provide an overview of Kickstarter and Indiegogo, which are two of the most popular options.
Angel investors are affluent individuals who provide capital for companies (typically startups), usually in exchange for convertible debt or ownership equity. Angel investors typically invest under $2M, but more commonly between $50K to $250K.
If you do not have an exit strategy for your business, angel investors may not be your best route. These investors are looking for companies that they can invest in, as a way to get a return on their investment.
If your plan is to grow your business and sell it, acquire more businesses, or even potentially go really big and IPO, then angel investors might be right for you. But if your plan is to grow your business and the own it and run it forever, you may want to think twice about approaching angel investors. If you are curious about angel investors near you, check out this angel investor directory.
A venture capitalist (also known as a VC) are people who invest in business ventures by providing capital for either startup or expansion. VCs are looking for a higher rate of return than would be given by more traditional investments. Typically, the range of funds invested by VCs and VC firms is $500,000 to $10 million. You need to be planning a very high growth strategy in order to even think about bringing in VCs.
Whatever funding source, or combination of sources you decide to seek, we wish you the best of luck in your new or expanding venture!
Editor’s note: This article was originally published in 2012. It was revised in 2019.