You have the vision for your business and the commitment to make your dream a reality. Now, you need capital. Just how much will you need? The average small business owner spends roughly $40,000 during their first year in operation, though a lot depends on your line of business, your location, and other factors.
Keep reading for ten popular ideas to secure funding for a small business. One or a combination of these approaches might help you reach your goals.
1. Crowdfunding
In the U.S. and Canada, crowdfunding campaigns generated $73.93 billion in donations in 2020. Crowdfunding involves raising money through small donations from other people via a crowdfunding platform.
With crowdfunding, aspiring business owners often provide rewards in exchange for donations. These might include discounts, free products or services, or promotional merchandise.
People who invest in crowdfunding campaigns are often 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 will meet a need or solve a problem.
Some crowdfunding sites to consider include:
- Kickstarter: 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 own 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 equity in the companies. You can connect with such people through online sites like AngelList and Angel Investment Network.
In addition, you can use social media platforms like LinkedIn to network with potential angel investors. Local business groups and schools may also be able to refer you to local angel investors.
Before contacting any investor, prepare a solid business plan.
3. Borrow from friends & family
Friends and family members in the U.S. and abroad can be potential sources of funding for your new business.
Here are some tips for asking friends and family for funding:
- Make it clear what you intend to use the money for.
- Set realistic expectations for when you will be able to repay the loan.
- Agree upon a repayment schedule: Will you pay them back all at once? In monthly payments?
- Never assume that your friend or family member will be willing to forgive the loan and not require repayment. If you promise to repay the money you borrow, keep your commitment.
- Write up an agreement and have a lawyer review it before you both sign. This can help settle disagreements in the future if they arise.
- Update your friend or family member about your businesses. Share your successes and challenges with them along the way.
4. Business grants
Grants for immigrants provide a lump sum of money that you don’t have to repay. The federal government offers many grant programs that you can apply for at Grants.gov.
Many U.S. states and Canadian provincial governments also give business grants. Check out the following guides for details on what’s available in different geographic areas:
- Immigrant’s Guide to Starting a Business in Texas
- Immigrant’s Guide to Starting a Business in Florida
- Immigrant’s Guide to Starting a Business in New York
- Immigrant’s Guide to Starting a Business in North Carolina
- Immigrant’s Guide to Starting a Business in Ontario
Nonprofit organizations and for-profit companies also provide small business grants for immigrants. Our guide to business grants provides more details on federal, state, and private funding opportunities.
5. Small business loans
Small business loans are another way to get funding for your startup. You’ll receive loaned money from a financial institution and make payments on the amount you borrowed plus interest.
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 credit line 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
Financial institutions consider many factors when granting small business loans including:
- Line of business
- Financial projections
- Credit history and reliability of the business owner or management team
You’ll likely need to have a business plan to apply for small business loans. In some cases, the financial institution may also base much of their decision on your personal credit history.
Following some simple steps to building your credit score before you apply may increase your chances of having your loan application approved.
6. Tap into your existing budget
If you have a source of income right now, you may not need to to get extra funding for your small business. By making some changes to your monthly budget, you can work toward setting aside the money you need.
There are many ways that you can save money, even 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 to explore some of the options.
7. Side hustles
Side hustle is a slang term for a second job or venture that provides additional income. Starting a side hustle is another way to fund your small business. Our list of nine popular side hustles for immigrants in the U.S. gives you some 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 that 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 .05% interest, you would have $1,005 at the end of the year. The next year, you would be earning interest on $1,005 rather than $1,000.
Different types of savings accounts earn different levels of interest 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 gives you the possibility of making a higher return on your money. However, there is also risk involved in stocks.
With stocks, you purchase one or more shares of a company 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. If you sell when that occurs, you can lose part of your initial investment.
Some companies pay dividends to shareholders. If you own stock in one of these companies, they will 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 decides to give.
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 rewards points that you can redeem for gift cards, air fare, hotel stays, and other perks.
Many financial institutions will 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.
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