Methods for Funding a Small Business

Methods for Funding a Small Business

It is the dream of many people to achieve financial independence by starting their own small business. Many folks have an idea what business they would like to start.  Others might look for ideas at a place like Top Creative Business Ideas.  If you are one of these people, there is a good chance that you lack the necessary funds to put your small business idea into motion. You can have the greatest idea for a business that the world has ever seen, but if you do not have enough money your idea will be dead in the water. Coming up with a good plan for funding a small business is very important!

The good news is that there are many methods that creative entrepreneurs can take advantage of in order to acquire the funds they need to start and fund a small businesses. These are some of the most popular methods of obtaining financing for a small business.

1. Crowdfunding

The first method for funding a small business that we will discuss is Crowdfunding.  Crowdfunding is the hottest new trend that people are using in order to obtaining financing for a wide range of projects. Comedian Adam Carolla recently received $1.5 million in crowdfunding donations to make a movie. For those who are unaware, crowdfunding can be done on dozens of different websites. An individual or group can describe their idea regarding what they need money for, in the hopes that people will donate money to enable the project to be accomplished.

The people who donate money are not investors. They do not own a piece of the project, so the never need to be paid back. There are special “perks” for being a donor that can be defined to generate more interest.  Because these are donations, crowdfunders do not need to pay interest, as they would with a loan. The website that the crowdfunding is done on will keep a percentage of the donated money.  The most popular website for crowdfunding is KickStarter.com.  Give it a look if you’ve never heard of it before – it’s pretty awesome!

2. Make your items available for pre-order

The next idea for funding a small business that we will explore is pre-ordering.  With this method of small business financing, a person develops a product and posts photos of it on the website, along with a detailed description. The object is to get many people interested enough in the product to buy it before it is released. This money can then be used to manufacture enough of the products to fill all of the pre-orders.

This is the primary method described in the 4-Hour Work Week by Tim Ferriss.  This method limits your risk because you can test out ideas before dropping a ton of money on something that no one is interested in.  This method really does work well when executed properly.

3. Small business loan

Finally, no discussion of funding a small business would be complete without discussing loans.  Various financial institutions, such as banks, have loans available that are specially designed for people who are trying to start a small business. If you have decided to use this method to get the financing you need, it would be wise to go to as many lenders as possible and research your options. This is because the interest rates they offer will tend to vary greatly! Shopping around for a low interest rate can potentially save you thousands of dollars during the life of the small business loan.

The type of business you are trying to start will have a large influence on how easy it will be to secure a business loan!  Keep this in mind when seeking to fund your small business.

Methods for Funding a Small Business – Final Thoughts

Now that you’ve got found a method to fund your small business, you’ll need to consider how you will accept payment.  The easiest method I’ve found is PayPal.  The only downside to this is that the fees can be pretty steep – ~3%+.  Others will want to setup their own credit card processing merchant account.  Online gambling, adult entertainment or other businesses that are deemed to be high risk by the major credit card processors can benefit from using a high risk merchant account to process payments.  If you are not in this category, I’d recommend starting out with PayPal and expanding from there if things begin to take off with your own small business.

Check out these other great MoneyAhoy posts:

Finding Ideal Funding For Your Business How to Get the Financing You Need to Start a Business What You Need to Know Before Starting a Small Business Can an Email Marketing Campaign For Your Business Save Money?