You have a business idea and plan, but now you’re looking to raise business capital. Where to start? Saving money is hard, and asking for money isn’t any easier.

Getting business capital for your small business varies depending on the industry. There are several different types of funding that fit better for different business sectors. Here’s a breakdown of popular funding methods for different industries:

Arts/Entertainment

Startups in the arts and entertainment sector, according to data released by Seek Capital, obtain business capital mostly from VCs, and government-backed loans. They cost about $25,000 to $50,000 to start, and 53.1% make it past the first five years. 

Real Estate

Real estate startups mainly get their business capital from government-backed loans and personal savings, and they cost anywhere from $10,00 to $25,000 to start. About 59% make it past the first five years. 

Retail

Retail is the largest sector of the economy, and employees the most individuals. Most startups are funded through grants, bank loans and government-backed loans. They cost around $50,000 to $100,000 to start, and have a 55.1% five-year success rate.
Information

Information

Most information/tech startups use venture capital (VC) money, grants or credit cards. They’re the cheapest to start – $10,000 to $25,000 – but has the lowest five-year success rate at 44.3%.

Education

Education startups are obtaining business capital primarily through business and personal credit cards and grants from the government. They’re also relatively cheap to starts at $10,000 to $25,000 and have a 56% five-year success rate. 

Transportation and Warehousing

Transportation and warehousing startup’s main methods of funding include bank loans and personal and business credit cards. They cost about $25,000 to $50,000 to start and have a 50.1% five-year success rate. 

So, what are the different modes by which startups can obtain business capital?

Personal Funds

This is usually the most popular way to obtain business capital for a startup. Over 90% of startups get started without loans or grants. You don’t have to solicit for money, and you don’t have to worry about giving up ownership of your company. This method works if you

1. Have savings to spend and

2. Have time to save up.

Saving up can, however, take attention away from your business. Sometimes ideas need immediate action, and in order to capitalize on our quickly-changing consumer economy, you can’t wait to save up to act on them. 

Friends and family

This is often one of the first lines of finding business capital. Depending on the industry your startup is in, crowdfunding from friends and family might be the go-to. According to Martin Zwilling for Forbes, professional investors like to see that people trust you, and often by means of investing in your company. This doesn’t mean you shouldn’t proceed with caution, however. Taking money from your friends and family could affect relationships – if they don’t understand the nature of the startup world, or if they’re insistent on knowing the details of where their money is going, it could put a dent in friendships or family relations. 

Angel Investors

Angel investors are high net-worth individuals with a history of funding startups. The hard part isn’t finding them – they’re everywhere. The hard part is convincing them to invest in your ideas. You have to have a flawless plan and an even more flawless pitch. Lilach Bullock for Forbes says, “Find the right angel investor and not only will you benefit from their financial support but also their wisdom: oftentimes, they offer mentorship as a side dish alongside their capital.” There are also Angel Groups, which are groups of angel investors who pool their investment money. Angels are usually good for those looking to raise $25,000 to $250,000.

Grants

Grants are exactly what they sound like – business capital you don’t have to pay back. There is an infinite amount of grants out there, whether they be from the government or from other companies. They usually have some precursors, though. Many grants require your business to provide certain services or products, but some don’t. They’re also very competitive. There are many for diverse entrepreneurs and business owners – women, minorities, veterans, etc. Grants require pretty long application processes and aren’t often for that much, but the temptation of free money is usually all it takes to give them a shot. 

Venture Capital

The words might make some business owners cringe. Venture capitalists. But they’re often a vital part of getting business capital. VC money usually comes from firms, and they usually want quite a bit of equity and control. Zwilling says not to go after VCs unless you need more than $1 million (so, not in the earlier stages), and you should be prepared to spend at least six months on the process. 

Crowdfunding

Becoming increasingly popular, crowdfunding is a good way to use your already existing network to raise business capital. There are several online platforms, like Indiegogo or Kickstarter, that give you the ability to collect small sums of money from grassroots support. Naturally, the sites take a percentage of that earned. There are also some platforms that let you raise money via equity crowdfunding, meaning that individuals can actually receive shares of your company in return for their donations. These platforms, however, vary by state. 

Bank Loans

Sometimes, you just need a good old-fashioned bank loan. There’s nothing wrong with using loans to finance your business, as long as you’ve got a plan to pay it back. You retain full ownership of your company (as long as you make the payments), and you can use it to build your credit and get better terms in the future. Bank loans can also give you larger sums of money, if needed, and can be tailored for exactly what you need, like equipment. The drawback is having to pay interest on what you borrow. 

You can also obtain a line of credit and just use it for what you need. There are also SBA loans, which are backed by the government and have better repayment terms. These are competitive, but the good news is there’s a lot of them.

Interested in obtaining business capital through a loan or line of credit? Or, just want to know more about obtaining business credit? FaaSfunds can help. Reach out to us today to sign up for our FREE platform.

Crowdfunding is a term used for business funding meaning exactly what it sounds like: funding your business through a large number of people. The word has been adopted to mean different things, depending on the industry. To save confusion, however, we’ll stick to its meaning strictly for new businesses and startup funding.

Crowdfunding is mostly done online, makes this specific form of funding a newer development. We’ll start by going through models. 

Pledge-Type Crowdfunding

Kickstarter, perhaps the most well known, is a site that rewards people for “donating” to your business. If you’re selling a product, usually you’ll promise that product to your customers. If your selling something less-tangible – like a dating app or a service – companies will usually promise funders some sort of “swag” or benefits. Whether it be t-shirts or branded koozies, those who give you money often expect something in return, the same way an investor or venture capitalist would, but on a smaller scale. In order to raise funds on Kickstarter, you MUST deliver something to your funders, and you MUST meet your goal, or else you don’t get any of the cash you raise.

Other crowdfunding sites, like Indiegogo, don’t require you to give swag or meet your goal in order to cash out. This can be good for a content creator, but for an actual business, sometimes providing an incentive (like a product) motivates people to give you money. However, these options can be more convenient and cheaper than a Kickstarter campaign, and if you already have a grassroots supporting, they’re likely to get help with funding.

Equity Crowdfunding

The most recent development in crowdfunding is called equity crowdfunding, and it’s similar to an actual investment-model of funding. Through it, accredited and non-accredited individuals/investors can invest small amounts in your company in exchange for equity, or small bits of ownership. This is especially popular for hyper-local efforts, like breweries or coffee shops. It gives community members a way to invest in their community and its well-being. 

After the recession in 2008, the government realized the new businesses were being virtually wiped out by their inability to get credit and funding. So in 2012, they passed the JOBS Act, which allowed non-accredited investors to legally invest in private companies. Non-accredited investors are individuals who have a net worth of less than $ 1 million OR who earn less than $200,000 annually. That’s it. So now, pretty much anyone who wants to invest in a business through equity crowdfunding is able to.

In 2015, the government furthered equity crowdfunding de-regulation by allowing businesses to raise up to $1,070,000 per year and required that all transactions be done through an SEC-registered intermediary, either a broker-dealer or a funding portal (like a website). 

With equity crowdfunding, there are a few things you should be aware of. First, state laws regulate it. Depending on where you are in the country, the amount of money and types of investors could be significantly different. For example, in North Carolina, the 2017 PACES Act extends the amount of money that can be received from crowdfunding to $2 million and specifically allows for a non-accredited investor to give up to $5,000 per year via equity crowdfunding.

These regulations vary widely by state, so it’s important you be aware of the rules for your state before you decide to do an equity crowdfunding campaign. Like pledge crowdfunding, these are also done through online portals.

What Are the Risks of Crowdfunding?

Pledge-model crowdfunding runs a greater risk of failure than say, venture capital. Most sites often don’t require that the business have a solid business plan, and that can run the risk of fraud ruining the reputation of websites (like GoFundMe, for example).

There’s also no real advising available when you sign up for Kickstarter or Indiegogo, which doesn’t really set entrepreneurs up for success.  VCs and angel funds usually provide council. However, equity platforms authorized by the state you reside in often have more realistic models of setting up business owners for success. For a fee, you get counsel when you sign up for the platform. You also often have to provide a solid, fool-proof business plan. This way, there’s less room for error, and your company has a better chance of success.

With crowdfunding, there’s always going to be the chance you don’t get the money you need. Like rallying investors, it’s a hard process and can take ages. If you’re in need of more immediate, tangible funding, you might want to look into business loans or lines of credit. If that’s the case, FaaSfunds is here to help. Reach out to us today to get matched with the lender and loan that’s best for your business, and to receive professional financial advice.

What are the important things to think about when getting funding from friends and family? Number, one: always keep it formal.

That’s Business

Every business sector has its flaws, and finance is no exception. There’s always a catch when you’re dealing with money, and at FaaSfunds, we’re here to make sure it’s not a Catch-22. With so much to understand and be careful of dealing with business funding, we’ve made a guide to help you make smart financial decisions.

There will never be free money. Even if you apply for grants or seek investments from angel funds, there’s always going to be requirements and paybacks that not everyone can meet. Loans aren’t free money, either, and there are several things you should be aware of before you apply. Since money is a business itself, lenders are out to make a profit off of your debt, so it’s good to be aware of their practices.

According to Harvard Business School, small businesses are the driving force of American job creation. In the 15 years leading up to the 2010 census, small and new firms were responsible for creating two out of every three new jobs. Small businesses are obviously vital to the American economy, so why is having one so hard? In order to have a successful small business, it’s important to understand every aspect of your finances and maintain your debt. Here, we’ll explain the good and bad sides to maintaining business finances and getting funding.

Business Debt

Debt isn’t technically a bad thing, as long as you know how to use it. According to the Federal Reserves Small Busines Credit Report for 2018, 70% of businesses have outstanding debt. But the thing is, lenders are going to let you acquire new debt if they trust you to pay them back, and the only way to do that is to have a proven track record or repayment.  

The Bad News

According to Steve Goodrich, managing partner of North End Financial, in an article for Fundera, the single best predictor for paying off debt is the number of years a company has been in business. Roughly 50% of companies survive past the five-year mark, and if they can make it past that, it’s a pretty good indicator that they’ll succeed in the long run. After that five year mark, it’s significantly easier to get funding. 

But what about in the meantime? That’s the catch with getting a business loan – if you’re a new business and don’t have a track record yet, it’s a lot harder to get a loan. The odds are seemingly stacked because already established businesses that turn a profit are usually the only ones likely to get funding. Startups are hard to get business funding because there’s no way to evaluate them.

This is where personal credit comes in. Often, when a business is just starting, owners and founders have to get funding based on their personal credit score. This can be good and bad. If you’re just starting a business, it’s a good idea to try and build up your personal credit first.

The Good News

The good thing about trying to find business funding as a new business is that there are options, albeit they’re rarer. How does any business get started, then, if it’s so hard? The answer lies in raising capital. For more technology/online-based, scalable businesses, they’ll often go to venture capitalists and investment funds. For more concrete, community-based businesses, options can be more limited.

Grants are hard to acquire, but finding investors can be a little easier if you have a solid business plan. There are sites specific for pledge crowdfunding (Kickstarter, Indiegogo), and even newer sites popping up for something called equity crowdfunding – where accredited (and according to some state laws, non-accredited) investors can give money to companies and instead of receiving a product or swag, they receive a stake in the business.

There are also loans structured specifically for startups. The Small Business Administration has a microloan program, which gives small loan amounts to budding businesses at very reasonable rates.

If you’re looking for a traditional loan, or feel it would work best, people were the least dissatisfied in 2018 getting financing from a small bank, according to the Federal Reserve. Of those who got small bank loans last year, only 46% reported facing challenges, as opposed to 53% with large bank loans, and 63% with online lenders. 

Within those numbers, however, the reasons for being dissatisfied varied. The most cited issues with small banks were their waiting times for approval and funding, and the most cited issue with online lenders were their high-interest rates and unfavorable repayment terms. 

But then there’s the logistics of getting business funding, like how much of a credit risk your business is. Small banks only approve 47% of those considered “high credit risk,” as opposed to 76% for online lenders.

These are all the things you’ll have to take into account when trying to get business funding. If you have bad or little business credit, an online lender might be your best option, even though they have higher interest rates.

Do Lenders Want You To Succeed? 

The world of finance isn’t really structured to help small businesses succeed. It’s more or less structured to keep big businesses successful. Just remember, lending is a business too. If you can’t pay or keep up with their terms, they’ll do whatever they can to get money from you. If you’re starting a new business, there are some things you should keep in mind that will not only set you up for success but also help you make a case to get funded. 

Tech market intelligence platform CB Insights compiled a list of the top reasons that startup businesses don’t make it. At the top of the list was a lack of market need – of the failed businesses included in the research, 42% of them failed because they didn’t fill a market void, or there wasn’t a demand for their product. It’s important to analyze the market you’re looking to enter – whether it be a tech market or a retail market – to make sure that there’s an actual need for your product. You wouldn’t make a lemonade stand in the middle of the winter in Minnesota, would you?

The next most popular reason businesses fail, unsurprisingly, was running out of cash. 29% of failed startups cited this as the reason they didn’t make it. Next came not having the right team, getting outcompeted, and then finally, pricing and cost issues. Most businesses surveyed were within tech-related fields, but even if you’re not a tech startup, there are valuable lessons to be learned from the failure of other businesses.

So What Does All This Mean?

When you want to get your business funded, there are a lot of obstacles you’ll have to face. That’s the ugly side of business financing – it’s like a game of blackjack, and you have to play your cards right in order to guarantee you’ll come out of it successfully. Some of it is luck, and a lot of it is skill.

If you want help, though, that’s why FaaSfunds is here. If you’re starting a business and want to build your business credit, or you’re looking for funding options, or you’ve been around for a while and want to know what your next move should be – FaaSfunds is your go-to business finance tracker and funding advisor. We’ll match you up with the funding that best fits your business, no matter your credit score or financial history. If you want to know what FaaSfunds can do for you, click the button below to get started today.

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FaaStrak, LLC and affiliate FaaSfunds are software providers that exist to facilitate funding and help you make financial decisions for your business. The views, reviews, recommendations and suggestions expressed in our articles aren’t in any way affiliated with certain products or companies, and are based on the view of our editorial team alone, not FaaStrak, LLC as a whole. We do not take endorsements from products or companies mentioned above. We give advice based on research and industry knowledge, but the finance world is vast and variable, so we do not claim to be experts at everything within it. We are here to guide and provide direction, but are not here to enforce our knowledge as fact. We cannot be held liable for decisions made by you or your business. Under no circumstances should FaaStrak, LLC or any of its affiliates be liable for any indirect, incidental, consequential, or exemplary damages or loss of profits arising out of or in connection with your access of our site or software.