Eight Ways to Raise Capital for Your Great Idea

So you’ve been thinking about buying or starting your own business. Maybe you even took your business plan to the bank to get a loan…and were denied.

Don’t. Stop. There. When life throws you curve balls, we’re here to help you knock them out of the park.

Over the past year at the Sierra Small Business Development Center (SBDC) we worked with over 250 businesses and delivered over 1,000 hours of free counseling to people just like you. Aspiring entrepreneurs and business owners who need help accessing capital. Don’t let a bank rejection get you down, there is more than one way to raise capital and launch a business. In fact, according to research by the Kauffman Foundation, only 19% of small businesses are actually financed by a business loan. So lets look at how the other 81% finds money to launch.SBC Innovation Man

Crowdfunding: Crowdfunding through websites such as Kickstarter, Indiegogo and Barnraiser provide a transaction fee-based platform for businesses to pool relatively small donations from a large number of “investors.” Typically, there is no expectation of return except for a tiered reward related to the new business product or service offering. There are other sites that offer an equity-based crowdfund model in which the business issues ownership shares in return for an investment. Equity-based models have a higher degree of complexity and may be subject to securities law requirements so be sure you understand the difference. There are pros and cons to every platform and the SBDC can decipher what is the best fit and help you design a successful crowdfund strategy.

Friends, Family and Private Investors: This is a broad category, but a viable way to get started for many people. We often hear clients say “oh, I can’t ask my family for money” but there is a way to ask that establishes a level playing field right off the bat if you treat the transaction like an investment in a great opportunity. We’ve helped a number of small business owners prepare a business plan and pitch deck that clearly articulates their vision and shows the investor a feasible plan for recouping their investment. This isn’t personal, its business so don’t discount this tremendous pool of trusted source funding!

Credit Cards: Don’t laugh, we have the inside scoop on a zero interest bankcard with a 12 month term. If you’ve done your homework and know your expected cash flow, this can be the fastest and best alternative for short term financing of inventory, working capital, payroll or startup marketing. Just be sure you vet your plan with a trusted advisor like the SBDC to be sure you can pay down the debt before the interest rate kicks up.

Alternative Lenders: At the SBDC, we work with a number of non-profit, alternative lenders who provide loans to new businesses with less than perfect credit. These loans are designed specifically for entrepreneurs who are not ready for primetime lending but have a great business model.

Product Presales: This is an often overlooked but highly effective way to raise the money needed to finance your business. Essentially, your customers place a non-refundable deposit for their order to help finance inventory. You can avoid the risk related to excess inventory and forget the working capital loan altogether.

Community Based Financing: Several communities in the Sierra have Community Development Block Grant (CDBG) programs that provide technical assistance, low interest loans and grants to income eligible microenterprises with 5 or fewer employees. In 2016, SBC will be working with El Dorado County and possibly the Town of Truckee to provide free business counseling that prepares qualified businesses for CDBG loans. This is a fantastic opportunity to access low cost capital to launch a business.

Bootstrapping: Perhaps my favorite way to start a business is good old-fashioned bootstrapping where the owner relies on personal savings and incremental cash flow to grow a business. This is absolutely the leanest, most disciplined approach and can prevent sloppy habits from forming when cash is abundant… but borrowed! We have one client who started her home-based business with $250 and after three years has grown revenues to $100,000 per year with no debt. That is a true bootstrapping success story!

Online Lending Platforms: Potential danger zone! A huge note of caution about these rapidly proliferating sites that offer quick and easy access to cash for small businesses: Please, whatever you do, avoid the temptation of online lenders until you understand the true cost of capital. These sites are unregulated and as a result can charge usurious (and IMHO unethical) fees. They have the advantage of speed, but they often do not publish their true annual percentage rates and we have clients who unknowingly are paying APR interest of up to 48%! Trust me, this is a rabbit hole you don’t want to go down and it’s a fast road to financial disaster.

Starting your own business can be both the most exciting and terrifying time of your life. The Sierra Small Business Development Center exists to help small businesses thrive and we are here to help amplify the exciting and smooth out the terrifying. So if 2016 is your year to knock it out of the park, start off by contacting us for a free session or by attending the Social Media Knowledge Bites workshop on January 19th. The Knowledge Bites series is presented by the Truckee Donner Chamber of Commerce, in partnership with the Sierra Business Council’s Small Business Development Center, and generously sponsored by Plumas Bank. The venue sponsor is the Truckee Tahoe Airport District.

Knowledge Bites will be held January 19th from 8:30-10:00am at the Truckee Airport, 10356 Truckee Airport Road and you can register here.