Once you have a great business idea and the commitment to make your dream a reality, it’s time to find funding for your business. Startup capital helps you hire employees and secure your location. This Remitly guide helps you explore your options, location, and other factors.
Review 11 popular ideas on how to find funding for a small business. One or a combination of these approaches might help you reach your goals.
1. Crowdfunding
Crowdfunding involves raising money through small donations from other people via a crowdfunding platform. In the U.S. and Canada, crowdfunding campaigns generated $73.93 billion in donations in 2020 for small business owners and others.
With crowdfunding, aspiring business owners often provide rewards for donations. These might include discounts, free products or services, or promotional merchandise.
People investing in crowdfunding campaigns often find themselves drawn to compelling stories and unique business ideas. When creating your campaign, consider telling your personal story as an immigrant and convey how your business plans to meet a need or solve a problem.
Some crowdfunding sites to consider include:
- Kickstarter: a popular rewards-based platform for a variety of endeavors
- IndieGoGo: another rewards-based platform often used by businesses that sell products
- Patreon: for creative content producers like artists and musicians
- SeedInvest: gives users equity in a company rather than rewards
- WeFunder: allows you to solicit funds from your network and outside investors
- MicroVentures: most used by internet-based and tech businesses
- Fundable: rewards and equity-based platform for tech startups
2. Angel investors
Angel investors are wealthy individuals who wish to invest in small businesses in exchange for company equity. You can connect with such people through online sites like AngelList and Angel Investment Network.
You can also use social media platforms like LinkedIn to network with potential angel investors. Local business groups and schools can also refer you to local angel investors.
Before contacting an investor, prepare a solid business plan that explains what you plan to do with the money once you receive funding and outlines your strategy for launching your business.
3. Borrow from friends and family
Funding for your new business startup costs may be available through friends and family members in the U.S. and abroad.
Here are some tips for asking friends and family for funding:
Make it clear what you intend to use the money for
Treat your family members like official potential investors by explaining your vision.
Let them know exactly how plan to use their funds. Will the money go to helping you hire employees? Purchase equipment? Launch an advertising campaign?
Be as clear as possible so they know what they’re agreeing to.
Set realistic repayment expectations
When requesting a loan from a relative, be realistic about when you plan to repay them. Remember that it takes many small businesses a few years to become profitable. Don’t over-promise by saying they’ll have their money back quickly.
Agree upon a repayment schedule
Make sure that you and your loved one arrive at a repayment agreement. Consider if you plan to pay them back all at once or in monthly payments.
Create a schedule that works for the two of you, and then stick to it.
Don’t assume a small business loan is a gift
Never assume that your friend or family member will forgive the loan and not require repayment. If you promise to repay the money you borrow, keep your commitment.
Write up a loan agreement
Write an agreement and have a lawyer review it before you both sign. This can help settle disagreements in the future if they arise.
Provide regular updates
Update your friend or family member about your businesses. Share your successes and challenges with them along the way.
4. Small business grants
Grants for immigrants provide a lump sum of funds called grant money that small businesses don’t need to repay.
Most grant programs have eligibility requirements that you must meet before you apply. For example, some grant opportunities are strictly for immigrants who belong to a certain ethnic group or are from a particular country. There are also small business grant programs for specific industries.
Whatever the requirements are for the grant program, you’ll normally need to complete an application process. This usually begins with submitting a grant application. You may also need to provide your business plan and/or take part in an interview.
Here are some types of grants available for small businesses:
Federal grants
The federal government offers many grants for immigrants and other entrepreneurs. These grants come from a variety of government entities, including the following:
Small Business Innovation Research (SBIR)
If you have a novel business idea related to scientific research, you may be able to obtain a small business grant through the SBIR program. You can learn more about the requirements for SIBR small business grants here.
Small Business Technology Transfer (STTR)
The STTR is another federal program that provides small business grants related to technological innovation. More information about STTR awards is available here.
U.S. Economic Development Administration (EDA)
The EDA awards small business grants to entrepreneurs who wish to open or run businesses in areas that have historically faced economic hardship. Find out more about the program here.
Does the Small Business Administration (SBA) offer grants?
Since the SBA provides many small business services, many assume they also offer grants that cover startup costs. However, the SBA doesn’t generally offer business grants to launch new businesses or expand existing facilities or operations.
The SBA provides grant money for existing businesses for certain purposes. For example, the SBA awarded some business grants to help employers remain open during the COVID-19 pandemic. The SBA also has a grant program to help entrepreneurs learn how to compete for government contracts.
State grants
Government grants are available at the state level. Contact your state’s Office of the Secretary of State to learn more about business grants that may help you with your startup costs.
Private grants
Nonprofit organizations and for-profit companies also provide small business grants for immigrants. Our guide to business grants offers more details on federal, state, and private funding opportunities.
Often, a nonprofit organization provides funding for entrepreneurs from specific minority groups. For example, the SoGal Foundation has the Black Founder Startup Grant for nonbinary and women entrepreneurs who are Black or multiracial.
There are also specific grants for veterans, like those awarded through the Second Service Foundation. Some grants are also available to members of particular organizations like the National Association for the Self-Employed.
5. Small business loans
Small business loans are another way to get funding for your startup. In this scenario, you receive loaned money from a financial institution and make payments on the amount you borrowed, plus an additional amount equal to a percentage of the amount borrowed called the interest rate.
Traditional loans vs. SBA loans
There are two main types of bank loans:
- Traditional: A standard bank loan that the business or its owners promise to repay
- SBA: A loan obtained through a financial institution that’s backed by the SBA
With SBA loans, financial institutions have a guarantee that you plan to repay some funds if the business defaults. As a result, they often relax their lending criteria.
To qualify for an SBA loan, you need to meet certain criteria. Click here to learn more.
Traditional bank vs. online lenders
If you opt for a traditional business loan, you can choose from brick-and-mortar and online banks. Some entrepreneurs prefer to work with traditional banks because they can visit branch offices in person to get support. Others may opt for online lenders who can offer lower interest rates and more favorable terms because of their reduced overhead costs.
Types of traditional loans
Two of the most common types of business loans include:
- Term loans, where you borrow a set amount of money and make payments for a predetermined length of time, such as three, five, or seven years.
- Revolving loans, where you receive access to a business line of credit that you can draw from. You only pay interest on what you draw, and as you repay the principal, you can borrow the money again. Businesses often use these types of loans for working capital.
Small business loan criteria
Financial institutions consider many factors when granting small business loans, including the following.
Line of business
Lenders may restrict what types of businesses qualify for loans to cover startup costs. Generally, banks are more willing to grant loans to small businesses in growing industries.
Financial projections
Financial institutions examine your business plan carefully before granting a loan. They’re particularly interested in the financial projections—the predictions you’ve made about how much money your business might make.
Personal credit score and history
Lenders examine your credit history and score when considering your business loan request. Following some simple steps to building your credit score before applying may increase your chances of getting your loan application approved.
Previous business history
If you’ve owned a business before, the lender may ask for information about your business credit history and obtain your business credit score.
Work history and experience
Lenders also consider your personal work history and experience. Generally, they prefer to lend to people who know the industries related to their startups. If you’re planning to open a business in the future, it’s a good idea to work for a similar employer for a year or two to get a strong foundation in the line of business.
Other financial resources you have available
In some cases, lenders weigh your financial resources, such as whether you own a home or have retirement savings.
6. Tap into your existing budget
If you have a source of income right now, you may not need extra funding for your small business. You can work toward setting aside the money you need by making some changes to your monthly budget.
You can even save money on a tight budget just by taking small steps.
For example, budget apps can help you track and control your spending. Check out our list of the top budget apps to make your financial life easier.
7. Side hustles
A side hustle is a slang term for a second job or venture that provides additional income. Starting a side hustle is another way to self-fund your business and can help you achieve other financial goals. Our list of nine popular side hustles for immigrants in the U.S. gives you some options to consider.
Once you open your business, you may want to continue your side hustle to supplement your income or increase your business’s available cash flow.
8. Save small amounts frequently
Saving for the future doesn’t have to mean putting away large amounts of money. If you manage to save $20 each week, you’ll have $1,040 at the end of the year to put toward your small business. Saving $100 out of every paycheck can add up to $2,600 per year.
Set a realistic savings goal and stick to it. Keep the money in a separate savings account so you’re not tempted to spend it.
Savings accounts can be a good choice because they pay interest on the money you deposit. That interest helps you slowly grow the money you’ve already added to the account.
For example, if you put $1,000 in a savings account that pays 0.05% interest, you’d have $1,005 at the end of the year. The next year, you’d earn interest on $1,005 rather than $1,000.
Different types of savings accounts earn different interest levels and have varying features, benefits, and drawbacks. Weigh your options carefully before opening an account.
9. Invest in stocks
For savvy investors, the stock market allows you to make a higher return on your money. However, there’s also risk involved in stocks.
With stocks, you purchase one or more company shares for a set price. If the company performs well, the value of the stock can increase. When this occurs, you can sell your shares at the new price and keep the profits.
Unfortunately, stock prices can also go down. You can lose part of your initial investment if you sell when that occurs.
Some companies pay dividends to shareholders. If you own stock in one of these companies, they’ll pay you a portion of profits when they perform well financially. How much you receive depends on how many shares you own and what the company offers.
Keep in mind that making trades on some platforms costs money. Compare fees carefully before choosing an online platform.
10. Credit cards
Credit cards can provide quick access to money and make it simple to purchase equipment and supplies.
With credit cards, you receive access to a credit line of a predetermined amount based on your credit score and history. You can spend up to the limit and then make monthly payments on the balance plus interest.
Interest rates on credit cards tend to be higher than those for other types of loans. However, some cards give you reward points that you can redeem for gift cards, airfare, hotel stays, and other perks. Typically, you need a good personal credit score to qualify for credit cards with these programs.
Many financial institutions approve credit card applications for immigrants who are legal residents of the U.S. Whether you can apply for a credit card as a non-resident in the U.S. depends on the financial institution.
11. Venture capital
Venture capital is a type of small business funding where the money comes from private groups or high-net-worth individuals.
Generally, venture capitalists invest in businesses with a high growth potential and a solid business plan. When deciding whether to fund your business, they look at many of the same factors as banks, such as your business history and experience.
Connecting with venture capitalists requires some networking. You can find venture capital groups looking to invest on social media, at industry events, and at local events in your area.
One thing to keep in mind about venture capital compared to other funding options is that firms or individuals usually require you to give them a share of ownership in the company in exchange for the funding. Business owners who want to retain full control of their companies may want to explore other avenues like self-funding their new business.
How much money do you need to start a small business?
The average small business owner spends roughly $40,000 during their first year in operation. However, how much funding you need depends a lot on your line of business and your business plan. Check out our article on the subject to learn more.
Find ways to fund your business today
Immigrants hoping to open small businesses have many ways to obtain funding. Weigh the funding options for yourself, decide the best ways to fund your business, and then pursue them so you can get your great business idea off the ground.