Startup Business: Small Business Success Rate and Funding Information
While launching your own company can be an exciting new step in your career, it’s important to secure the appropriate financing in order to ensure the success of your business.
Just under 80% of small businesses make it past the first year. A little over half of those small businesses are still going strong by the four-year mark, with 56% of small businesses that started in 2014 still in business in 2018.
One of the keys to longevity when it comes to startups and new business ventures is financing — ample funds can provide you the wiggle room you need to grow and thrive for the first year and beyond.
Funding Your Business
If you’re looking for funding for your new business, there are a few different places you could start. Depending on your assets, credit score, and personal and professional connections, you can utilize a variety of different strategies in order to raise enough money to get up and running.
If you have a hefty savings account or good personal credit, you can use your own personal capital in order to fund your startup. Many small business owners start out by investing their own money in their companies before they see a return. Some entrepreneurs also use personal credit cards to finance the initial stages of their small business cards.
If you have the resources to do so, initially financing your business with your own personal capital can be a worthwhile solution. If your business doesn’t succeed, however, you’ll be on the line for any money you’ve spent. When using your own money and credit, it’s important to make sure that you make financially responsible decisions in order to avoid damaging your credit or taking a severe financial loss.
Friends, Family, and Well-Wishers
Reaching out to people in your network is one of the most sure-fire ways to raise funds for your small business. If you’re thinking about raising money to launch a new business venture, consider letting your friends, family, and associates know what your plans are. While it may sometimes be uncomfortable to ask for money, people with whom you have a personal connection might be more inclined to financially assist you. People in your circle may also be able to support your business venture through other means, like donating their specific skills and talents, or offering an interest-free loan.
If you have an already-established circle of potential supporters that you know are eager to back your new business, consider crowdfunding as a way to raise startup funds from your community. There are a wide variety of crowdfunding platforms that may suit the needs of your new business.
- GoFundMe - GoFundMe is a crowdfunding platform that allows people to raise money for anything from businesses to educational expenses to funds to help recover from illness or misfortune. While GoFundMe isn’t specifically designed for small businesses and startups, it can be a great way to promote your fundraising campaign.
- Kickstarter - Kickstarter is a fundraising platform focused on specific projects, like a book, album, or innovative new product. Kickstarter backers often pledge a specific amount in order to receive different perks or rewards. When raising money on Kickstarter, it’s important to set a reasonable goal, since if the goal isn’t met by the deadline of the fundraiser, all money must be refunded. Kickstarter might be a good option if your small business focuses on a creative endeavor or physical merchandise.
- iFundWomen - If you’re a woman looking to launch her own business, iFundWomen may be the crowdfunding solution for you. The platform is specifically designed to encourage female entrepreneurs and includes mentoring services and a private forum to talk shop with other women launching startups.
- CircleUp - CircleUp is a financial technology company that provides financing in the form of equity, credit, or both for small businesses and consumer-facing brands.
Angel investors are individuals or groups willing to invest in exchange for equity or convertible debt. Angel investors can lend help to small businesses when they need it most, during the initial startup phase and as they continue to expand and grow. Angel investors may take the form of affluent individuals, companies, or organizations.
Loans and Venture Capital
This fundraising strategy can include personal loans, business loans from banks, SBA loans, and investments from VC firms. Unlike many of the other fundraising options listed above, loans represent an investment that you’ll eventually have to pay back, whether to an individual, organization, or the bank. If you need just a little influx of cash to get you going and are committed to paying it back, a loan could be a good option for you. Even if you have bad credit, you may still be able to get a loan to fund your business.
Applying for Startup Loans
If you’re short on cash, loans can be a great way to finance the initial stages of your small business. Before you apply for a loan, check your credit — you may need to repair your credit history in order to qualify for a loan.
If you have decent credit, personal loans could be a good option for financing your startup. Some of the best personal loan companies can get you a loan of up to $100,000, which is more than enough to get started. Keep in mind, though, that you are liable for repaying personal loans even if your business doesn’t succeed. With a good credit score, you may be able to get a lower interest rate on a personal loan than a business loan. But if your credit is iffy, you may want to think twice about going further into debt.
Although they can be challenging to get, business loans are another option when it comes to raising funds for your small business. If you’re just getting going, the chances of getting a business loan from a bank are slim, since they often need to look at several years’ worth of financial info on your business in order to make sure that you’re a safe investment. Without a substantial financial record, banks may be wary of lending to new businesses, but if you are able to obtain a business loan, it can limit your financial liability in many cases.
The SBA, or Small Business Administration, works with lenders to provide loans to small businesses and startups. Since the SBA guarantees the loan, it poses a much smaller risk to lenders. Businesses can borrow up to 5.5 million dollars through an SBA loan, although most loans are for a much smaller amount of money. While SBA loans can be a great option for financing your small business, there are strict qualifications in order to be able to obtain one.
Using Credit Cards
If you’re out of options when it comes to financing your small business, using credit cards can be another way to make a prudent investment in your startup and spend money to get it up and running. Depending on your situation, you may be able to get a business credit card for your startup, and can start building good credit for your business right away. You can also use a personal credit card to finance your business in its initial stages.
New credit cards can provide promotional offers including low introductory rates and interest-free spending for an initial period. When using a credit card, it’s always important to pay your bills on time to establish good credit, and to pay off the full amount on your card whenever possible in order to avoid paying interest.
The Bottom Line
Funding can be one of the most important factors when launching a small business, and can make or break a startup in its early stages. In order to secure funding, it’s important to develop a comprehensive business plan that lays out how the money will be spent, estimated projections of income for the business, and how you intend to pay back any loans or items purchased on credit.
A high credit score can also be a huge asset when starting a small business. Good credit will enable you to get the best interest rates on loans and to potentially qualify for more offers.
When you’re considering financing options, it’s important to explore each possible avenue with patience and diligence. Many small businesses receive funding from a variety of different sources, including crowdfunding, loans, investors, and more. With the right combination of initial funding and business savvy, your small business will be up and running in no time!
Not sure where to start? Here are some of our top business lenders:
How can a small business loan help me?
A small business loan can help your business grow in various ways, including purchasing real estate and equipment, expanding your business, increase working capital, and cover any additional expenses such as invoice financing.
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