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While in college, I wanted to start a book publishing company representing populations that were historically underrepresented within the publishing industry. At the time, I thought that bank loans or coming from a wealthy family were the only two ways to finance a business. As a student struggling with debt and a non-existent credit history, I went to the bank to apply for a loan. I was laughed at from the bank.
I researched other funding options and decided my best option was to start the publishing company of my dreams. I found free resources on the internet: blogs and articles that estimated the cost of starting a new business, financial planning resources to help me create a budget to get that money, and activity lists secondary for students. Since high school I was a freelance writer, so I continued to freelance to save for my dream business.
I pushed myself into a state of near burnout: working more than 60 hours a week while maintaining high grades in graduate school and planning my future business. I was doing the work of five people and working for more clients than I could handle independently and maintaining the high quality writing and editing services I pride myself on.
Relevant: how I went from solo entrepreneur to team leader
I recognized that my freelance work could become its own business, but I didn’t have the capital to make one. Digital marketing services, such as writing and editing, are still needed in the digital age, so I started focusing on turning my freelance services into a business. I worked diligently on a business plan that included a detailed budget and consulted with experts instead of relying solely on free online resources. I learned what a standard operating procedure (SOP) was and created one.
My learning experience to finance my digital marketing company prepared me to start my freelance publishing company. I knew where to find free online resources and I already had loads of resources saved on my computer. I knew what the company’s current expenses were and their costs. I learned to prepare for unexpected business expenses. I knew where to find free resources and focused more on organic social media to generate business than just paid ads. Every mistake I made while building, planning, and funding my digital marketing company served as lessons for the publishing company.
Bootstrapping isn’t the only way to fund your business. Below are some alternative options that I learned when initially seeking funding for my businesses and some recent discoveries.
Related: How to start a business with no money… and in five steps
1. Business credit cards
I only recently discovered the true power of business credit cards after reading several articles on the subject, including one Yahoo finance story about how 27-year-old serial entrepreneur Jack McColl leveraged business credit to build four six-figure businesses. The article discussed how relying on your personal savings can be detrimental to your business, as business credit cards allow you to borrow money from the bank to grow your business faster. If he could do it, so could I!
Business credit cards offer a higher borrowing limit than personal credit cards, which means you have a better opportunity to boost your business credit score. Many business credit cards also offer 0% interest, which is often rare with personal credit cards. In addition, a business credit card affects both your business and your personal credit score.
Related: 4 Steps to Building a Good Business Credit Score
2. Venture capital
Venture capital typically comes from financially stable investors, investment banks, or other financial institutions looking to invest in start-ups and small businesses with long-term growth potential. To attract investors, you’ll need a nearly flawless business plan and quantitative evidence to support your growth potential. A key caveat is that investors generally have a say in company decisions if they choose to invest in your business.
Crowdfunding is a type of investing where other people donate to help raise funds for your specific need. GoFundMe and Kickstarter are two of the best known examples of crowdfunding. Aspiring entrepreneurs can share their financial needs on platforms like GoFundMe and share their donation links on social media. Donors generally donate in smaller amounts than venture capitalists. Entrepreneurs who rely on crowdfunding must plan for the failure of their campaign or business. Although entrepreneurs never expect their business to fail, they can face legal consequences if they don’t or never keep their business promises. Having a contingency plan in place in this situation can help avoid donor anger and legal action.
4. Small Business Loans or Grants
The United States Small Business Administration (SBA) provides small business owners with contracting advice, expertise and capital. Additionally, they partner with various lenders to make it easier for small businesses to get loans, as the SBA assumes some business risk. Some of these loan programs provide ongoing financial counseling and training to help entrepreneurs start and sustain their businesses. The SBA also provides resources for investment capital, disaster relief, surety bonds, and grants. Entrepreneurs considering enrolling in SBA programs will need a comprehensive business plan, expense sheet, and financial projections for the next five years.
Related: Does a short-term loan already make sense for your business?