How Can I Fundraise as a Small Business?

Starting or growing a small business can be one of the most rewarding endeavors—until financing becomes an obstacle. Securing funding is a common challenge for small business owners, entrepreneurs, and startup founders. Without sufficient capital, it can be tough to cover operational costs, launch new products, or expand to new markets.

The good news? There are more ways than ever to fundraise as a small business. From traditional methods like bank loans to innovative alternatives like revenue-based financing, you have several options to access the capital you need.

So if you’re questioning, ‘how can I get funding for my business?’, this guide will explore both traditional and alternative fundraising methods to help you decide which approach works best for your business. Whether you’re bootstrapped, running an e-commerce business, or building the next big innovative startup, there’s a solution for you.

Traditional Fundraising Methods

1. Bank Loans

One of the most common ways to secure business funding is through bank loans. These include term loans, business lines of credit, and Small Business Administration (SBA) loans.

Pros and Cons:

• Pros: Consistent repayment schedules, predictable interest rates, and large loan amounts.
• Cons: High collateral requirements, stringent approval processes, and long disbursement times.

Tips for Securing Approval:

• Prepare a thorough business plan with detailed financial projections and demonstrate stable cash flow.
• Maintain a good credit score, as it significantly impacts your approval chances.
• Build a solid relationship with your banking institution—they’ll be more likely to work with you if there’s trust.

2. Angel Investors

Angel investors are individuals who use their own money to invest in early-stage businesses in exchange for equity.

Who Are They and What Do They Look For?

Angel investors are often entrepreneurs or industry experts looking to support innovative ideas. They prioritize scalable businesses with high potential for growth.

How to Pitch to Angel Investors:

• Tell a compelling story about your business. Highlight its vision and why it has the potential to succeed.
• Be transparent about the risks involved, but show actionable plans for mitigating them.
• Create a professional pitch deck that includes your market opportunity, unique value proposition, and financial projections.

3. Venture Capital (VC) for High-Growth Startups

Venture capital may be a good fit if you have ambitions to scale quickly. VCs provide funding to startups with high growth potential in exchange for equity.

When VC is a Good Fit:

• If you’re operating in a high-growth industry like tech or biotech.
• If your business model requires significant capital investment to scale.

The Trade-Offs:

• Pros: Access to large funding, mentorship, and industry connections.
• Cons: Significant equity dilution and the pressure to achieve aggressive growth targets.

4. Grants and Government Programs

Grants are essentially “free money” for businesses as they don’t need to be repaid. These are often offered by government bodies, nonprofits, or industry organizations.

Types of Grants:

• Grants for women-owned businesses.
• Innovation grants for tech startups.
• Small business relief grants post-COVID.

How to Find and Apply for Grants:

Research local and federal government websites for opportunities, and invest time in crafting a strong application that aligns your business with the grant requirements.

Alternative Fundraising Methods

1. Revenue-Based Financing (RBF)

An increasingly popular option for small and medium-sized businesses is revenue-based financing. With RBF, you repay the financier based on a percentage of your future revenue, not fixed installments.

How It Works:

The company provides you with funding upfront, and you repay it as a share of your monthly revenue until the agreed-upon amount is paid back.

Ideal Businesses for RBF:

Businesses with consistent monthly revenue.

Real-Life Example:

Take Divani.store, an Italian e-commerce company specializing in customizable, Made-in-Italy furniture. After struggling to find financing for expansion into Germany, they turned to a revenue-based financing provider. With growth capital in hand, they improved their advertising performance, launched new product categories, and ultimately boosted impressions by over 340% year-over-year.

2. Crowdfunding

Crowdfunding allows you to raise capital by collecting small contributions from a large group of people.

Types of Crowdfunding:

• Rewards-Based: Platforms like Kickstarter where contributors receive a tangible reward.
• Equity Crowdfunding: Platforms like Seedrs where contributors gain equity in the business.
• Donation-Based: Typically used for social enterprises or charitable initiatives.

How to Run a Campaign:

• Create a Story: Share your mission and what the funding will achieve.
• Include Visuals: Engaging videos or images can boost contributions.
• Offer Perks: For rewards-based campaigns, offer enticing perks to motivate contributors.

3. Bootstrapping

Bootstrapping involves using personal funds or reinvesting business earnings to grow your business.

Self-Funding Strategies:

• Leverage personal savings or run your business part-time while continuing another job.
• Focus on lean operating models to maximize every dollar.

Managing Cash Flow Effectively:

• Keep operating costs low by negotiating with suppliers or opting for pay-as-you-go software services.

4. Peer-to-Peer (P2P) Lending

Platforms like Funding Circle and Kiva connect small business owners with individual lenders offering competitive interest rates.

How It Works:

Upload your business profile, share your funding goals, and attract lenders. Once approved, you’ll receive funding quickly compared to traditional bank loans.

Compare Rates:

Always compare platform fees and interest rates to ensure you’re receiving the best deal possible.

5. Grants from Private Organizations

Beyond governments, private companies like FedEx operate grant programs to support small businesses.

Application Tips:

Clearly define how the funds will help your business grow and share your impact story. Authenticity matters here.

6. Supplier or Partner Financing

If you have reliable suppliers or partners, they might be willing to negotiate better payment terms or enter into revenue-sharing agreements.

Examples:

• Arrange longer payment terms to improve cash flow.
• Offer a percentage of revenue until your debt is paid off.

Choosing the Right Funding Option

When evaluating your options, consider the following factors:

• Business Model: Does your business have consistent revenue? High scalability potential?
• Risk Appetite: Are you willing to dilute equity or take on high-interest loans?
• Repayment Terms: Understand the implications of each option and how it aligns with your cash flow.

For many small business owners, a combination of funding sources provides the best approach—for example, using revenue-based financing for growth projects and government grants for innovation.

Take Action Toward Funding Your Business

Funding doesn’t have to be a roadblock to growing your business. Whether you choose a traditional route like bank loans or explore modern options like revenue-based financing or crowdfunding, the key is understanding your needs and selecting solutions that match them.

If you’re looking for flexible, entrepreneur-friendly financing, explore how RBF can work for you. Sign up with Viceversa today and unlock the capital needed to take your business to the next level.

Curious to learn more? Explore how alternative financing can propel your business forward and find the perfect funding solution today

For more insights on financing options like RBF and how they can positively impact your business, be sure to check out our article, RBF vs. Traditional Funding: Which Is Right for Your Scale-up?

Interested to hear more? Check out Viceversa’s growth platform today.