Starting a microbusiness – or microenterprise – can be a thrilling and rewarding undertaking. Generally defined as a small business with fewer than 10 employees, microbusinesses offer a highly flexible and scalable way to enter the market, gauge interest in a specialized product, pursue your niche passion, or just enhance your family’s financial security.
To successfully launch your small business, you’ll need adequate startup funding to help cover upfront costs like inventory, equipment, and marketing expenses. Ample funding can help ensure a smoother initial experience for you and your clientele, helping you create a positive first impression for your brand. It also establishes a strong financial foundation and tone for future growth.
Set your microbusiness up for success by learning about five common ways to fund the beginning of your journey.
1. Crowdfunding: Community-Based Capital
Crowdfunding has revolutionized the way small businesses can gather financial support. By tapping into the power of the internet, you can receive many small monetary gifts from a vast audience. Three primary types of crowdfunding exist:
- Reward-based, where backers receive products, services or discounts in return for their financial support
- Debt-based, where people loan your business money that you’re expected to repay, typically with interest
- Equity-based, where individuals receive a stake in your company when they give monetary support, such as through a Simple Agreement for Future Equity
Regardless of the type you choose, crowdfunding can be an excellent way to effectively raise funds, validate your small business vision, interact with potential clientele, and retain a healthy measure of control over your business and its finances.
2. SBA 7(a) Loans: Government-Backed Support
The Small Business Administration offers financing specifically designed to help small businesses access the funds they need to thrive. The SBA’s 7(a) loan program can prove especially beneficial for microbusinesses in need of startup funding.
These loans are backed by the federal government, reducing the risk to lenders so they can comfortably offer more accessible and favorable borrowing terms. You can use the funds for virtually any need, including inventory and equipment purchases and marketing campaign costs. Certain eligibility requirements often exist, such as having a robust business plan and being able to demonstrate financial responsibility.
3. Grants: Powerful Tools for Growth
Unlike loans, grants don’t have to be repaid. They’re essentially monetary gifts that are awarded to companies to help them launch or expand, often based on the company’s need, merit, industry or mission. Grants may be offered by the government, private foundations or corporations, and they are often highly competitive, with large pools of applicants and limited funding available.
Regardless of this, grants can be financial saviors for your microbusiness. To boost the likelihood of being awarded grants, ensure your applications are detailed, legible, organized and accurate, with all application requirements met. Research grants in your industry to find ones that are a good fit for your needs.
4. Angel Investors: Leveraging Private Wealth
Angel investors are wealthy individuals who use their own financial resources to provide working capital for small businesses, typically in exchange for ownership equity. Compared to venture capitalists, angel investors often exhibit more patience and may accept more flexible or lenient terms that work better for your microbusiness. Beyond funding, an angel investor with experience in your industry can also be a valuable source of expertise, mentorship, and professional and investor connections.
Before connecting with angel investors, you’ll need to develop a compelling pitch and thorough business plan, complete with a clear value proposition, financial projections and anticipated returns for the investor. This can help you make a promising first impression and attract investors with visions that align with yours, offering a unique opportunity to grow your microenterprise with guidance from someone who is already successful in the field.
5. Bootstrapping: Bankrolling Your Business
If you want to minimize the debt you take on or ownership equity sacrificed during startup, consider potential bootstrapping options. Bootstrapping refers to funding your business using your own resources, without seeking external financing or gifts. This could mean using your personal savings, earnings from another income stream or revenue generated from the microenterprise as it starts to grow.
Bootstrapping allows you to maintain full control and ownership over your business, and more of your earnings can go straight back into the microenterprise – or your pocket. Though this has clear benefits, it also means you assume all of the financial risk yourself. For this strategy to work, it’s crucial to wisely manage your financial resources. Prioritize spending so you only make necessary purchases and reinvest profits back into the business.
Superb Growth Starts Here
By exploring various startup funding options like government-backed loans, angel investors and grants, you can find a blend of financing to launch and nourish your microbusiness. Weigh each funding method’s unique benefits and drawbacks against your business’s operational plan, risk tolerance and long-term goals to find suitable matches that can bring your vision to life.
With a wide range of business banking tools and the designation of SBA Preferred Lender, Amegy Bank helps empower even the smallest businesses to make the biggest impacts. Get your microbusiness going with our SBA 7(a) loan program and diverse checking and savings account options, then set the stage for ongoing success with sophisticated Treasury Management services to help manage and protect your finances. When it’s time to grow, embrace it with powerful solutions that expand your possibilities, including credit cards, other SBA loans, lines of credit and our Small Business Diversity Banking Program.