The infrastructure necessary to launch a new business has never been easier to attain. With digital tools available via the internet, it’s possible to leverage existing technology to outsource work, connect more easily, and reach customers in ways previously unknown.
One problem standing in your way? Your business will need an infusion of cash to get off the ground. One study by U.S. Bank found that some 82 percent of businesses fail because of cash flow problems, as new businesses simply couldn’t meet the demand their expenses created.
Entrepreneurs who need a cash infusion have options other than investors, though. From small business grants to online crowdfunding platforms, the potential cash is out there. Each solution comes with its own set of strengths and weaknesses. Here, we’ll review three smart ways to kickstart your business and weigh their pros and cons.
Related: Why You Should Pursue Business Grants and How to Find Them
Small Business Administration grants
The Small Business Administration has a wide variety of funding programs available for qualifying businesses, including grants for research known as the SBIR (Small Business Innovation Research) and STTR (Small Business Technology Transfer) programs, respectively.
The advantages to such a grant are obvious: since grants do not require repayment, a grant from the SBA would essentially be a windfall of cash that a business can use freely toward its objectives.
Although the requirements of these grants can be strict, once the money is in place, it essentially comes with very few catches. This gives businesses a great degree of freedom, especially those still in the early stages of forming.
On the flip side, competition for these grants can be fierce. Your business needs a compelling reason to get awarded such a grant, which means that you’ll have to demonstrate that you are indeed the type of business that would qualify for the SBIR or STTR. Make sure you prepare all the necessary paperwork and information even before you apply.
Women and minority grant programs
Starting a business is difficult enough—doing it as a woman or a minority can come fraught with all sorts of challenges along the way. That’s why there exist a bevy of women and minority grant programs available to provide many of the advantages you just read about. Because these grants come virtually “no strings attached,” they can be tremendous opportunities for startups run by women and minorities.
With women owning only some 29 percent of U.S. businesses and minorities only about 15 percent, these grants aim to level the playing field. The disadvantage here is obvious: not everyone is eligible for these grant programs, which means that they might not even be an option for some.
There are some other potential issues, as well—many of these grants want to work with an established business. That means you may have to wait until your business gets its legs in order to qualify.
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Online crowdfunding platforms
Online crowdfunding is popular, effective and easy to try. But whether your business should turn to a platform like Kickstarter may not be as simple a question as you might imagine.
These crowdfunding platforms do have the advantage of serving as “grant”-like funding: once your business has established itself and you’ve received the funding, you’ll be able to spend that cash infusion as you see fit. But, there are some potential drawbacks you’ll need to be aware of, as well:
- Providing something in return. On an online crowdfunding platform, you’re essentially selling the idea of your business. And if you don’t make any sales, you might not meet your fundraising goals. That means businesses have to create labor-intensive incentives for individual investors.
- Being a “needle in a haystack.” The good news is that crowdfunding is popular. The bad news? Crowdfunding is popular. It takes honest effort to make your business stand out from the other startups looking for a cash infusion, which means that you’ll likely have to go about the process with as much preparation and work as you might in applying for a grant.
- The platforms themselves have to make money, too. Which means that many of your donations will actually go to the platforms. This isn’t necessarily an impediment to achieving startup funds, but it’s something to be aware of as you budget and plan for your startup.
An infusion of cash helps ensure that your business will have what it needs to build stock, inventory, or begin offering high-quality services. But the way in which your business achieves those funds can be one of the most important decisions entrepreneurs make at the start. Take the time to weigh your options so your company starts off on the right foot.
