Five Creative Ways To Fund Your New Small Business

This is a guest contribution from Bill Hazelton, CEO and Founder of Credit Card Assist, a leading pro-consumer, credit card information resource.

It takes a lot of guts to run a small business these days. You need to be your own boss, your own IT team, your own cleaning crew and, most importantly, your own accountant. Typically, money is always tight in the first year (or few years for some), and things will only get tougher if you can’t find sources of financing to support your early growth track. The problem is that ever since the economic implosion that started back in 2008, the banks have severely tightened their lending criteria. So, what does a small business owner have to do to find funding for his or her business? Get creative.

To successfully fund your new business these days, you’ll have to think outside the box, over the box and sometimes even on top of the box. We’re talking Zappa-style unorthodox here. If you’re not exactly the creative type though, it might be difficult to conjure up creative financing ideas. In order to help you kick-start the thought process, we’ve come up with a list of 5 creative ways to fund your small business.

1) Pitch your business to a local university. Institutions of higher learning just love seeing small businesses succeed. Universities worldwide donate millions of dollars in grants to promising start-ups every year. If you think your company brings something new to the marketplace, why not compete for funding from your alma mater? While you might have to take on a few interns if you win, funding from local universities is a legitimate option to consider.

2) Try ‘crowd funding’. In years past, crowd funding was simply a euphemism for begging. But in 2012, asking strangers for a little bit of money has become all the rage in the start-up community. What makes crowd funding different than investing is that donors don’t expect to receive a stake in the business when they hand you $100. Instead, they typically ask for some sort of recognition or reward. For instance, if you’re opening a bakery, you might give a few charitable individuals a plaque on the wall and free cupcakes for life. On balance, it’s another legitimate source of financing that new small business owners should strongly consider.

3) Sign up for a small business credit card. Small business credit cards have gotten a bum rap recently, but the truth is that these cards can actually be incredibly useful tools for launching and managing the financial aspects of any small business. They provide great options for tracking expenses, managing your cash flow and also provide a great backstop in financial emergencies. A card like the Capital One Spark Cash Select is a fine choice for prospective new small businesses.

4) Make a deal with the angels. If your business has serious growth potential, an angel investor might be a source of financing to investigate. Angel investors are wealthy business people that are willing to provide capital for promising start-ups. The only catch is that angel investors will require an equity stake in the business, which might require a cut of your profits in the short run, an equity position and a voice in management and strategic direction on a long term basis.

5) Get a micro loan. The SBA maintains a micro loan program that provides small short terms loans to small businesses. Maximum loan amounts are capped at $50,000 but have an average microloan amount of roughly $13,000. These SBA loans are a great way to fund working capital needs or to purchase inventory, supplies, machinery or equipment. While you won’t be able to buy a new lot for that new retro diner you just opened, an SBA microloan might be enough to provide that new grill you’ve had your eye on. Also, to fund day-to-day operations or invest in growth, invoice factoring is a good source for immediate cash flow.

Sources of financing for small business have multiplied in recent years, but you still need a very compelling business model to convince investors that you’re worth their time. The reality is that securing an angel investment or venture capital funding is highly unlikely for the vast majority of new businesses.

Guy Kawasaki said, “[The] probability of an entrepreneur getting venture capital is the same as getting struck by lightning while standing at the bottom of a swimming pool on a sunny day. This may be too optimistic.” The good news is that most small businesses don’t really need that type of funding.

In the end, the most credible sources of financing for the vast majority of small businesses will still be a micro loan, crowd funding or a small business credit card, which are all viable financing options. All in all, those options aren’t half bad.