6 Small Business Funding Options for Startups

12 Feb, 2014 | Articles

Ok, so everyone asks how to get funding when you cant get a small business loan from a bank to fund your start-up business? The following 6 options are the most common financing options that small business start-up have used to fund their business.

Savings

This is the #1 small business financing option for most people. To the extent small business owners have a nest egg, they will typically use a portion of this before they going searching for funding from 3rd parties.

This is a great way to get started and the clear benefit is that it doesn’t have a cost (i.e no interest rate). Of course, the downside is that it is your capital that is at risk and if things go bad its all on you!

Credit Cards

Credit cards are the go to source of funding in the absence of longer tenor debt. According to a 2012 National Federation of Independent Business study in the US a whopping 79% of small business owners used credit cards to start or grow their business.

Larry Page and Sergey Brin used credit cards to fund Google in its infancy and so have many may other successful start-up businesses. There is of course also a lot of businesses that have used credit cards to start up their small business and have failed miserably. The credit card option is a good fall-back when no other financing options are available. The big downside is that it significantly increases the risk of failure because if you dont have cashflow to meet your monthyl credit card payments, things can get ugly quickly – so be careful.

Family and Friends

Do you have a rich uncle? Many start up ventures are funded by friends and family – and this is especially the case where the entrepreneur has a background in the venture (such as a chef starting his own restaurant) and where the capital cost of the start up is relatively large and not easily financable through other means. If you adopt this route just be sure that your family fully understands the risk in the venture.

Grants

There are a large number of Federal and State grant programs available for start-up businesses. These programs are typically reserved for unique business models and typically require a degree of technological innovation from what is currently on offer in the market and are notoriously difficult to get. To see an overview of the grants on offer check out Australian government grants:

Bank Borrowing

Bank financing is (with the exception of grant funding) typically the cheapest form of financing but also the hardest to get. Most banks don’t fund start-ups but they will lend against property security so if you own property you can potentially draw capital from this asset to fund your loan.

Non-Bank Finance

In Australia there are now a number of non-bank debt alternatives for small businesses. Companies like Silverchef and Flexirent provide funding to small business operators that need equipment finance. In addition, there are a number of operators in the invoice discounting and factoring space that provide working capital solutions for more established businesses. These players include Bibby Finance and Scottish Pacific.

And here at GetCapital we provide loans to help small businesses fund their growth with true business loans (without the need for property security).

Conclusion

Getting your financing right for your start up is one of the keys to start-up success. It is not just about the cost of the financing but getting the right financing partner that will suit the specifics of your business and its risk return profile. Most entrepreneurs underestimate the funding they require – so think carefully about both the amount and type of funding you need.

And lastly, good luck growing your business!