16 Ways To Get Money For Your Business

Photo: yomanimus

Former kid entrepreneur, co-founder of iContact (a leading on-demand email marketing service) while an undergraduate student at the University of North Carolina at Chapel Hill, and now Chief Executive Officer of iContact, Ryan Allis, has lots of ideas for getting money to grow a business. He’s got real-world experience, which he shares in his book Zero to One Million: How I Built A Company to $1 Million in Sales... And How You Can, Too.

Using Ryan's expertise as a guide, here are ways, simple to sophisticated, to get money for your business:

  1. Use money from a regular job, part-time job, one-time gig, or contract work.
  2. Generate cash from your business and re-invest it (also known as bootstrapping).
  3. Get a personal loan from family members or friends (iContact bought server equipment through a loan from a friend).
  4. Request a loan using Prosper.
  5. Set up a credit line with corporate credit cards (iContact has 2 credit cards with a combined $160,000 of credit available).
  6. Use personal credit cards (I know someone who funded her business, a chain of tanning salons, with credit cards. She paid teaser rates only and kept track of when promotional offers ended, and when she needed to find a new card.)
  7. Borrow from your bank or credit union, getting a secured loan using your personal assets (such as your home) as collateral.
  8. Get a loan secured by business assets such as inventory, real estate, or equipment.
  9. Find a co-signer for a loan if you don’t have assets to use as collateral.
  10. Get a bank loan backed or guaranteed by the Small Business Administration; also see this article on SBA-backed loans from Business Week. (iContact got a credit line from Bank of America backed by the SBA.)
  11. Factor your accounts receivable; that is sell your unpaid invoices to a factor who will pay you part of what you are owed now, and more when the full amount is collected, less a fee, helping your cash to flow.
  12. Structure a convertible debt deal. This Inc. article describes how a software company owner designed a deal that paid its lenders a guaranteed interest rate and then paid back the principal after 5 years if the debt had not been converted to an ownership stake in the company. (iContact raised $500,000 by issuing convertible debt through a deal with NC IDEA).
  13. Work with a venture bank such as Silicon Valley Bank. These banks may offer a variety of funding methods and tend to work with companies that have strong potential for explosive growth and profitability. (iContact has a $1 million credit line with Square 1 Bank).
  14. Issue corporate bonds. A company may structure its own deal with a stated interest rate and term length, and then sell the debt instrument to investors.
  15. Find angel investors who will give you money in exchange for a equity in your business (common stock or preferred stock).
  16. Raise capital from a venture capital (VC) firm. This process requires much dialogue and culminates in a term sheet or details of the agreement prepared by the VC firm and a valuation of the company, which will ultimately determine the percentage ownership the VC firm will have in your business. (iContact received $5.35 million in funds from Updata Partners.)

Ryan recommends starting the getting-money process by preparing a business plan and pro forma financial statements (projections of profit & loss statements and cash flow). The financial information gives business owners, lenders, and investors an idea of how much money is needed, what the money will be used for, the projected return, and how much risk is involved. 

The amount of money needed is a key factor in deciding the approach for finding money: for example (according to a table in the book), if you're looking for $1,000 to $25,000, then you'll likely get a bank loan or money from friends; if you need $25,000 to $250,000, a bank loan or angel investors are the way to go; if you need $250,000 to $1 million, go to a small VC firm or a network of angel investors; for more than $1 million, see a VC firm. All of these techniques require building solid relationships over a period of time and being able to demonstrate that you know what you're doing.

Note: I received Zero to One Million in exchange for a book review. This post focuses on one chapter, "Raise Funding or Bootstrap." Ryan shares general business principles but also provides insight into what it takes to build a high-value technology company. Fairly complex ideas, such as pre-money valuations of companies seeking venture capital, are covered but the book is easy to read and written in a conversational manner.

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Guest's picture

The credit card loan is not the best credit line you can use. The interest rate is really very high. Ask your friend working for bank - the employees of the bank would never use credit card as the credit line.

Always try to find a cheaper credit line. It can save your business.


Julie Rains's picture

I know that using credit cards to fund a business doesn't seem like a great idea but it is a common practice. Those who can't get a business loan will start with credit cards. If an entrepreneur has a solid business plan and knows what the business's cash flow is (and return on investment), then he/she can make an informed decision of whether to use credit cards as a source of funds (that is the return on the business exceeds the interest rate). And, though the interest rate is likely higher than a home equity loan, there are advantages from a risk management perspective. (you'll have a big balance to pay off but you won't lose your house if you have trouble making payments)

In his book, Ryan mentioned that the rates are typically higher from 12% to 19% (though I have seen even higher rates). He is less risk averse than I am when it comes to credit but he has built a $10 million (in annual sales) company (with his associates).

Inc. magazine mentions that credit cards are a "mainstay of the small-business owner" but recommends shopping around for rates and options.

Guest's picture

I think that the Small Business Administration is a great place for looking for money. The SBA has lots of great loan programs. Another great avenue is State grant or loan programs.

Guest's picture

SBA does not loan money unless you already have money! No money = no money! For instance: An SBA loan is applied for the purchase of a preexisting, lucrative business with a regular customer base; Rather than qualify the loan based on the business one desires to purchase, SBA qualifies the loan based on the company making the purchase!
Women owned makes no difference. They are looking for start up capital...period.

Guest's picture

Very informative post. I agree that all of those ideas could help you raise cash for your business. However, why not do it debt free? I like the idea of working and investing until you have enough to get started. In my opinion if you already have a business bootstraping is the way to go. Debt will just weigh you down and possibly drive you out of business, if your well laid plans don't work out.

Fred Lee's picture

It seems like the classic Catch-22 of business. You need to put money into a business to get anybody to put money in your business. And the costs can be enormous. It seems like people in business like to think big. If you have any desire to involve VC people, then you can't envision a small business out of your home. It has to involve millions, if not more.

My sense is that it all begins with a business model. But how many people really have any experience with this? And the thought of maxing out your credit cards is not a desirable one.

Thanks for the informative post. It touches on a lot of issues. 

Julie Rains's picture

Ryan has a case study of bootstrapping in his book and I mentioned it in points 1 and 2 so, you no, don't have to go into debt to build a business. Though you do have to be prepared to live uber-frugally and do everything from managing key account relationships to cleaning the floors. In some scenarios, trying to do too much yourself can actually choke sales growth and kill a business as easily as going into too much debt (Ryan mentions that as well, also with a brief case study).

The primary audience of Zero to One Million is the entrepreneur in technology, biotechnology, energy, or consumer goods industries, probably with valuable Intellectual Property; VC funding might make sense if the company wants to grow quickly or needs to grow quickly to capture the market and establish dominance.

Still, there is useful information even for the person who wants to run a smaller business.


Guest's picture

I want to raise some fund for my blogging business so I can afford to start blogging part time (instead of in my spare time). Great post

Guest's picture

my name is thayakaran from kuala lumpur, malaysia... i am currently workin on a small college project which requires me list down and explain the sources of finance to run or open a business..
the question is verry general where they did not state or specify any type of business. can anyone help me is this? i would realy appreciate it if you guys can help me in this...Please and thank you..

Julie Rains's picture

There are 16 ideas in this post so you are welcome to use these sources for financing a business.

Guest's picture

Tell me about EQUIPMENT LEASE/BUY-BACK COMPANIES. Are there any reputable companies that loan money off of the equipment that a business already owns as a means of raising capital? I can find plenty of companies that operate under this function, but I cannot find any customer reviews! That seems really strange to me. Thanks! I'd appreciate your insight!

Julie Rains's picture

By using a piece of equipment to get a loan, the equipment is collateral and the lender can take possession of the collateral if the loan goes bad. The types of companies that I was referencing were traditional banks (or possibly savings and loans and credit unions). There may be other types of lenders; loan covenants would be key here to make sure that calling the loan wouldn't be triggered by some arbitrary event.

Check with your state's attorney general or its regulator of commerce, and/or Better Business Bureau to see if there have been complaints or issues to consider.

Guest's picture

i used a cash advance company called Merchant Advance Capital. They were fast and really nice to deal with. Expensive, but i would recommend it if you have bad credit.