How To Fund Your Business

Every business has different needs, and no financial solution is one size fits all. Your personal financial situation and vision for your business will shape the financial future of your business.

Once you know how much startup funding you will need, it is time to figure out how you will get it.

Fund your business yourself with self-funding.

Otherwise known as bootstrapping, self-funding lets you leverage your own financial resources to support your business. With self-funding, you retain complete control over the business but you also take on all the risk yourself. Be careful not to spend more than you can afford, and be especially careful if you choose to use tap into retirement accounts early. You might face expensive fees or penalties, or damage your ability to retire on time — so you should check with your plan’s administrator and a personal financial adviser first.

Get venture capital from investors.

Investors can give you funding to start your business in the form of venture capital investments. Venture capital is normally offered in exchange for an ownership share and active role in the company.

Venture capital differs from traditional financing in a number of important ways. Venture capital typically:

• Focuses high-growth companies
• Invests capital in return for equity, rather than debt (it is not a loan)
• Takes higher risks in exchange for potential higher returns
• Has a longer investment horizon than traditional financing

Almost all venture capitalists will, at a minimum, want a seat on the board of directors. So be prepared to give up some portion of both control and ownership of your company in exchange for funding.

How to get venture capital funding.

There is no guaranteed way to get venture capital, but the process generally follows a standard order of basic steps.

1. Find an investor

   Look for individual investors — sometimes called “angel investors” — or venture capital firms. Be sure to do enough background research to know if the investor is reputable and has experience working with startup companies.

2. Share your business plan

   The investor will review your business plan to make sure it meets their investing criteria. Most investment funds concentrate on an industry, geographic area, or stage of business development.

3. Go through due diligence review

   The investors will look at your company's management team, market, products and services, corporate governance documents, and financial statements.

4. Work out the terms

   If they want to invest, the next step is to agree on a term sheet that describes the terms and conditions for the fund to make an investment.

5. Investment

   Once a venture fund has invested, it becomes actively involved in the company. Venture funds normally come in “rounds.” As the company meets milestones, further rounds of financing are made available, with adjustments in price as the company executes its plan.

Use crowdfunding to fund your business

Crowdfunding raises funds for a business from a large number of people, called crowdfunders. Crowdfunders aren’t technically investors, because they don not receive a share of ownership in the business and do not expect a financial return on their money.

Instead, crowdfunders expect to get a “gift” from your company as thanks for their contribution. Often, that gift is the product you plan to sell or other special perks, like meeting the business owner or getting their name in the credits. This makes crowdfunding a popular option for people who want to produce creative works or a physical product.

Crowdfunding is also popular because it is very low risk for business owners. Not only do you get to retain full control of your company, but if your plan fails, you are typically under no obligation to repay your crowdfunders. Every crowdfunding platform is different, so make sure to read the fine print and understand your full financial and legal obligations.

Use Lender Match to find SBA-guaranteed loans.

If you have trouble getting a traditional business loan, you should look into SBA-guaranteed loans. When a bank thinks your business is too risky to lend money to, the SBA can agree to guarantee your loan. That way, the bank has less risk and is more willing to give your business a loan.

Use Lender Match to find lenders who offer SBA-guaranteed loans.