Self Made: NASE's Blog

It takes more than just a great idea to get a small business off the ground. Most entrepreneurs also need capital. Nearly half of startup failures in 2022 were caused by lack of financing, according to data from Skynova and CB Insights. Small Business Administration (SBA) loans, which typically offer low interest rates and generous loan amounts, can be a great option — but brand-new startups may have a tough time qualifying.

Thinking outside the box can help new businesses get up and running. Here are six creative ways to unlock funding.

1. Peer-to-peer lending

Peer-to-peer lending platforms connect entrepreneurs to a network of potential investors. Think of it as an online marketplace where interested investors fund personal loans. If your small business gets approved, the loan will be funded by an individual investor. (Traditional loans are funded by financial institutions.) 

It typically begins with filling out an online application. Be prepared to provide personal information like your income, credit score and employment status. If approved, the platform will try to match you with a potential investor. Some peer-to-peer loans charge an origination fee that usually ranges from 1% to 8%.

2. Crowdfunding

Crowdfunding might be another way to cover your startup costs, which can add up quickly. After you choose an online platform to host your crowdfunding campaign, potential investors can contribute directly to your small business. There are three main types of crowdfunding, according to LegalZoom.

• Equity crowdfunding: Sacrificing ownership shares in exchange for cash

• Donation crowdfunding: Accepting donations without giving up equity

• Reward crowdfunding: Trading products or services for contributions  

Crowdfunding may not be enough to meet your funding goal, but it could provide some much-needed capital. Platforms like Kickstarter, Patreon and Indiegogo are popular options, though each one charges its own fees. Just keep in mind that with equity crowdfunding, you must follow federal and state filing requirements after closing.

3. Startup loans

Traditional business loans usually require excellent personal and business credit, along with strong annual revenue. Newer companies that don’t have an established business credit score might consider a startup loan. They can be used for all kinds of expenses — from purchasing inventory to hiring employees to finding office or retail space. Startup business loans usually have looser eligibility requirements than traditional business loans. 

If your business is less than two years old, you’ll probably need to use your personal financial status and credit score to receive funding. You may also be required to put up collateral, which may help you secure a lower interest rate and better terms. This is called a secured loan. Business owners who lack credit or revenue can also consider an unsecured business loan.

4. Nonprofit grants

Unlike loans, grants don’t have to be repaid. That makes them an ideal funding option for new startups. Small business grants are typically offered by foundations, corporations or federal, state or local governments. The competition can be thick, but you’ve got nothing to lose by applying. Here are some ways to find available grants:

• Federal Grants

  • The U.S. Small Business Administration (SBA)

  • Grants.gov

  • Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR)

• State Grants

  • State Business Incentives Database

  • U.S. Economic Development Administration

  • Small Business Development Centers (SBDCs)

• Private Grants

  • Amber grants

  • Black Founder Startup Grant

  • Hello Alice

5. Business credit cards

If your new small business needs immediate financing, a business credit card might help you bridge the gap. It can also be a good way to keep your business expenses separate from your personal finances — and you might be able to earn rewards along the way. Every credit card issuer is different so it’s wise to shop around and compare offers. Interest rates can vary, and some may require you to provide proof of business revenue. 

Having a plan to pay off your balance is important. Otherwise, you could find yourself in a debt cycle. One other thing: as the business owner, you’ll be personally responsible for making good on your payments. When searching for a business credit card, ask yourself questions like:

• Is there an introductory APR? If so, when will the regular APR kick in?

• Is there an annual fee? If so, is it worth it?

• Can I earn rewards?

6. Startup pitch competitions

Getting in front of investors can be a challenge. Startup pitch competitions can be a great way to connect with potential investors and get them to believe in your vision. Do some digging to see what’s available in your area and industry. Below are five resources to help you get started: 

• The MIT $100k Entrepreneurship Competition

• The Utah Entrepreneur Challenge

• The Young Entrepreneur Summit

• SXSW Pitch

• U.Pitch

These types of events allow you to pitch your small business to venture capitalists and angel investors. They can also be great networking opportunities that enable you to make important connections.