It's a pretty common issue — entrepreneurs and innovators want to start some new business, but don't have a lot of money to do so.
The good news is that these intrepid pioneers now have a lot of options in today's lending economy.
Here are some of the key ways that business leaders can get started, without spending a lot of upfront capital on their dreams.
The grant process can be cumbersome, but it can be instrumental in giving business leaders upfront money to put into a business plan.
In general, your business documentation is going to be a big aspect of grant success. It's also important to know the landscape of these grant programs, and understand what they're asking for, up to and including the format for applications.
Grants can be a way to get started thinking outside the box for funding a company that's new and doesn't have a big war chest.
Look for Different Lending Avenues
Here's where these new business leaders have a lot of choices.
In the old days, traditional business loans involved going to a bank and getting a specific financing plan in place through an individual application. The borrower had to work hard, in many cases, to prove themselves to an individual lender who then decided whether or not to get involved.
Today, through the power of the Internet and cloud, as well as cryptocurrency and fintech, borrowers have many different options involving peer-to-peer and crowdsourcing lending. They may, for example, get microloans from many small donors, instead of venture capital funding from one big firm. They have new ways to reach angel investors, and new ways to prove their collateral or secure a loan.
With that in mind, it pays to think about lending in a whole new way and spend more time figuring out the particular types of lending that will best serve your new small business. You may want to go the traditional route with seed rounds of funding, or you may want to go to a new peer-to-peer or crowdsourcing platform.
Investigate Invoice Factoring
Here's another way to bootstrap business finances.
Invoice factoring involves selling outstanding invoices for money. The buyer takes on the payment process in exchange for upfront funds.
How does this work for a new small business? Let's say that the business needs capital, and has completed some initial projects or services, or sent products to clients. The invoices are outstanding, but they haven't been paid yet.
Invoice factoring unlocks that money for the company. The buyer gets a premium in terms of the eventual payout, but in return for a reduced revenue, the startup gets the money immediately, and that can make the difference in creating the financial runway that business leaders need.
Plan for Scaling
Another major tip is to start small, and only take on what the business can handle financially.
It can be tempting to want to tackle the world in one great leap, but that's the way that a lot of businesses get in trouble financially. Specifically, for a business without a big budget at the startup, it makes sense to build small, and steadily grow the coffers in order to branch out and expand more confidently (and on better financial terms) later.
This also helps you to blaze a trail in the precise way that benefits the business the most, not just ‘buy it and hope it works later.’
Plan Business Structure
In some cases, changing the business structure is also a way to grow funding.
For example, there is the S Corp. or C Corp., but there's also the LLC that often connotes a partnership. If the business can include more partners at its beginning, that is its own kind of crowdsourcing that can also lower the capital requirements for each partner.
Here’s an additional tip: as you look at your various options and types of loans, you'll find that some are better suited to your own financial strategy. Where are the lowest interest rates and most favorable repayment terms? Who are the lenders who seem most amenable to or excited about your project?
Many lenders would say that there is a human element in the relationship between the lender and the borrower. Shopping around for options gives you more of an idea of what loan will serve you best in the long run.
As you go, think about options for using a more scaled-down startup process. What do you absolutely need at the beginning of your business cycle, and what can wait?
All of this can help in preparing for small business success at the outset of your venture. What do you think? Leave your comments below and get involved in planning your business well.