Business Starter Thought Leader: Monica Allen
“An entrepreneur without funding is a musician without an instrument.” – Robert A. Rice Jr.
How Do You Fund Your Business?
You have validated your product or service in the market. Meaning you have actually made some sales. You have done the legal registrations and documentation to make your business legit. Now how do you fund your business?
“Bootstrapping can also be known as self-funding.”
My husband and I started our first business with $700. We opened our first business bank account with $1000. Because we sold $300 worth of fliers and he and I both put in $350 each to open that account.
We began our business by bootstrapping. Bootstrapping can also be known as self-funding. This means you invest your own money, use personal debt, personal savings or maybe borrow money from family and friends.
We bootstrapped and continued to reinvest our earnings from product sales to grow and scale our business. Bootstrapping requires that you be nibble and utilize your resources carefully and efficiently.
Securing A Loan:
“If you start your business as a side hustle, be sure to pay down debts using your income.”
We would later get a bank loan to purchase our first embroidery machine. And eventually open a line of credit to help bridge the gap during slower times in the business. As a small business the one thing to know about your business acquiring a bank loan is that, securing the loan will rely on your personal credit score.
Therefore, If you start your business as a side hustle, be sure to pay down debts using your income. And work to get your credit score as high as possible. Over time your business will begin to establish its own credit history; however, vendors may still require that you be a guarantor. Meaning you will be responsible for paying even if the business cannot.
In some cases a grant may be available for your business. Typically grants do not have to be repaid. These can sometimes come from the federal or local level of government. You can begin at grant.gov to search for grant opportunities.
“Crowdfunding is when a large group of people donate towards a business idea or project.”
Crowdfunding For Your Business:
The one thing to know about grants is that they are often very detailed about how the money needs to be used and you need to adhere to those rules or guidelines. The only time we have received a grant was during the initial start of COVID.
Once we applied for the Paycheck Protection Program (PPP), we received $1000 per employee that did not have to be repaid. We also did get our PPP loan forgiven.
The next few options for funding your business are not things that I have personally utilized, but they are options to consider. Crowdfunding. Crowdfunding is when a large group of people donate towards a business idea or project.
There are several companies that offer a platform for crowdfunding such as Kickstarter, GofundMe, Patreon and Fundable. The fantastic thing about this option is that it can also be another way of getting market validation as well as getting your product known to a market or large group of people. These funds are typically not paid back.
Another method that is similar to crowdfunding is Peer-to-Peer lending. This is a platform that brings lenders and small business owners together. The advantage is that it is easier to acquire these funds as opposed to traditional lending methods and rates are often lower.
“Research each option and make a decision that will work for you.”
Some peer-to-peer lending platforms are Peerform, Prosper, Kiva and SoLo Fund. These funds do have to be paid back as it is a loan and not a grant.
There are also venture capitalists and angel investors. Both of these options require you to give up a portion of your business. Think Shark Tank. This is not something that we have done. When we mentioned this to our former CPA many years ago, he strongly advised against it due to the loss of some control of the very company you started.
There are slight differences between venture capitalist and angel investors. Venture capitalists will provide your company (usually a risker startup) an influx of cash for some controlling interest over the company. Oftentimes they are trying to get their return on investment within three years via an IPO or sale to a bigger player.
Best For You And Your Business:
An angel investor is often a wealthy or well-to-do individual who puts their personal funds into a company that they believe in for some ownership. In both cases the idea is to bring the expertise of the people in the venture firm or the knowledge of the investor into the company to help it scale.
In this day and age there are now so many options, and though I can’t speak to which option will work best for you and your business, I would recommend you first determine how much money you need to start or grow your company and take it to the next level.
Keep in mind that you will typically need more than you anticipate. Research each option and make a decision that will work for you. In many cases, your company may go through more than one, if not all, of these funding methods.
About the Author:
Monica Allen is a serial entrepreneur who overcame the obstacle of growing up with a young single mother, living below the poverty line in a small town with very little opportunity. After obtaining her undergraduate degree from the University of Georgia, she worked in Corporate America and obtained a Master’s degree in business.
After 8 years in corporate she took the leap to set out on her entrepreneurial journey. Starting with just $700, she has since grown an 8 figure company and is now the host of the Become Your Own Boss podcast helping aspiring and early-stage entrepreneurs launch, grow and scale their businesses while also being the boss of every area of their lives. You can follow Monica on IG here.