If you are looking to grow your business, extra business funding can help to fuel growth. At some point, small businesses and successful entrepreneurs need a cash injection to take their business to the next level. Funding business growth can help most small business owners to scale your business operations, reach more customers, improve services, and boost revenue.
For business owners, knowing where to find the best financing options for growth is a significant challenge. For example, you may face obstacles in getting approved for loans. Or lenders may view you as a high-risk investment due to limited business history, low credit scores, or industry.
How can you turn perceived obstacles into stepping stones to discover new financing options to fund your business? We have developed a guide for small business owners to find the best funding options to facilitate business growth. Here you will find business financing options that can speed up growth to help you reach your business goals.
Overcoming Obstacles to Funding Business Growth
Funding to grow a small business can be challenging. According to a Federal Reserve Bank survey, 66 percent of businesses faced financial difficulties in 2019. But, over half of the businesses didn’t apply for third-party funding.
The main reasons why business owners didn’t apply for funding options include:
- Unfavorable interest rates
- Inability to meet the repayment terms
- Collateral constraints
- Fear of getting into debt
- Funding on offer wasn’t enough
A 2021 survey also found that just over half of business applications for small business loans (SBA loans) were rejected. The primary reasons for rejection were the following:
- Short business history
- Issues with a poor credit score—personal and business
- Incomplete loan documents
- Lack of a solid business plan
Business Growth Plan — The First Step to Business Success
The most significant factor in successfully getting growth funding is a robust business plan. The plan must focus on specific strategies that will accelerate business growth and the targets you will meet to reach your business goals.
Investors need to see a realistic financial forecast before parting with funds, whether an angel investor, credit union, bank or venture capitalist. The projection should show how much funds are necessary for growth and how you will utilize the additional funding.
At Cunningham and Associates, we have developed a Growth to Goal Model to help businesses large and small develop a roadmap to success.
8 Financing Options for Funding Business Growth
Developing a solid business growth plan is just the first step to reach your growing business needs. The next step involves deciding on the type of funding you require. Typically, a few factors will help determine which funding options best suit your needs. These include:
- How much funding do you need for business growth
- How much risk you are willing to take
- The availability of funding for your business
Here are seven options that may help you secure funding for your growing business.
1. Self-funding or bootstrapping
Bootstrapping involves using your own funds to grow your business. Self-funding options could be through personal loans, savings, credit card stacking, or credit lines.
The advantage of bootstrapping is that you don’t have to give up any ownership of the business. You continue to have control over day-to-day operations and decisions. Typically, self-financing business growth results in the fastest returns.
Crowdfunding is an effective way to get additional funding to grow your business. Through a crowdfunding site, you can attract people who are willing to invest in the business. Here are the two most popular options:
- Equity crowdfunding: Each investor gets a stake in the company, depending on the size of the investment.
- Reward crowdfunding: In exchange for their investment, anyone donating funds to the venture receives a reward.
There are many crowdfunding sites, and some are industry-specific. So, look around for a suitable site and read the small print carefully to see how each crowdfunding site works.
3. Small business loans (SBA)
You may qualify for an SBA loan to help raise financing for business growth. SBA-backed loans are relatively accessible for small businesses and have fewer risks than a traditional loan. The loan is provided by a local bank, credit union, or a micro-lending institution. Typically, SBA loans have excellent rates and fees. You also benefit from support to help run your business successfully.
4. Bank loans
For long-term investment and growth, a bank loan may be the best funding option for your business. An advantage of a business bank loan is that you don’t give up control or sacrifice future profits. However, getting a bank loan can be tricky because you need a solid business growth plan to convince the loan officer to release funds. You will also need to consider interest rates and your ability to make repayments. Additionally, the loan application process can take a long time.
In essence, grants are free money. They aren’t loans — so no interest, and no worrying about needing to pay the money back. It’s yours to keep. Grants can be difficult to obtain. But anything worth doing is difficult.
There are three categories of grants worth researching: federal, state and regional, and private grants. Also, you can obtain specialty small business grants if you’re a minority, veteran, or a woman.
The largest distributors of grants are government agencies and they offer funds for a range of businesses in different sectors of the economy. We do want to warn you — the application process and the paperwork can be daunting. But it’s worth a shot. Excellent places to start researching grants are Grants.gov and SBIR and STTR programs.
Every state and local region will have different grant options. We recommend reaching out to your state’s economic development agency for more information on local and state grants. Also, there are many local small business development centers that can help you with your search as well.
Finally, large corporations often give private-level grants to small businesses for philanthropic purposes. FedEx, Miller Lite, Chase, and Walmart are just some of the mega-corporations that offer private grants.
6. Angel investment opportunities
Angel investors are high-net-worth individuals, often with experience in starting up and running successful businesses. Usually, angel investors are interested in startup businesses and want equity in return for their investment. This can be in the form of convertible debt or a stake in the company. But business angels are willing to share their expertise, talent, and experience
Angel investment opportunities are an excellent way to secure business growth funding. Yet, it’s good to note that you may have to give up some control of the business. But if your goal is to grow and sell the business, then an angel investor could be your best option.
7. Venture capitalists (VCs)
If you have high growth plans for your business, a venture capitalist may be an excellent funding source. Typically, VCs are looking for a high rate of return in exchange for their investment. And they are usually willing to make substantial investments in growing businesses. But, like angels, you may have to relinquish some control of the company.
It’s good to note that, unlike angel investors, you’ll not get friendly advice from VCs.
8. Financing from friends and family
If other funding options fail, then family, friends, or people in your social network may be willing to invest in your business growth. When pitching to friends and family, it’s vital to have a solid business growth plan like you would have for any other investor. The funding could be as a loan or to have a stake in the company.
The risk with involving family and friends in a business venture is damaged relationships. If something goes wrong with the business, in-fighting and feuds can develop with wide-reaching consequences. So, always take legal advice and be sure that friends and family will receive a healthy return on investment.
Funding for business growth can help take your business to the next level. The additional investment allows you to grow your business to increase sales and boost profits. There are many funding options available for small businesses looking to expand. Crowdfunding, bootstrapping, small business loans, and angel investors are a few viable options for growing businesses.
At Cunningham and Associates, we help business owners unlock their full potential and get the funding they need to grow and scale. Book a free consultation with us today to learn more about how you can reach your business goals.