3 options for women to fund their small business

Any entrepreneur knows all too well the challenges of getting funding for a small business. As a female entrepreneur, it may feel more like moving mountains when it comes to getting your business off the ground.

So what can you do about it?

How to fund my small business startup

A huge gender gap still exists when it comes to raising funds. This inequality occurs even though female-founded startups deliver more than twice as much per dollar invested than male-founded startups.

Consider venture capitalists, for example, who supply large amounts of money into businesses, small and large. In 2016, women received just $1.46 billion in investments overall, while men received a whopping $58.2 billion. This disparity exists despite the fact that women are starting businesses at 5-times the national rate of men.  

So what’s the best way to secure the startup money you need, and perhaps even boost your ability to raise more money down the road? We’ll take a look at the pros and cons of three different sources of funding:

1. Crowdsourcing

Also known as crowdfunding, this involves going online and asking people to contribute money to bankroll your idea. The hope is that a lot of people will donate a little bit of money to help you reach your goal. And with women-led crowdfunding campaigns 32% more successful than male-led campaigns, it’s something to think about.

Pros:  

• You don’t have much to lose. Unlike a loan, if things don’t work out, you don’t have to pay it back.  
• You maintain control. None of your “investors” are shareholders in your company, so you get to maintain equity and control, while raising capital to get your company off the ground.  
• Crowdsourcing may help you with long-term fundraising down the road, since it can prove to other investors that people are interested in what you’re doing.

Cons:  

• You need a solid idea or buzz-worthy product up-front and ready to go. After all, you’ll need something to deliver before you can ask for money—and that “something” is often expensive to create.
• Your investors may not represent the mainstream buyer. People who give money to these types of campaigns tend to be “early adopters” of new products or technologies. Just because they like your idea, doesn’t necessarily mean the average person will.  
• You’ll pay a percentage. Popular crowdfunding sites like Kickstarter, for example, take a cut out of every successful campaign.  
• It’s not the best choice for long-term funding. However, crowdfunding might help get the attention of venture capitalists down the road.
• Your idea might get stolen. Be sure your product is protected (e.g., patented, copyrighted or trademarked). Even if it is protected, there’s the risk someone may create a very similar product that’s slightly different enough to bypass those protections.

Tips for raising funds through crowdsourcing:

• Tell your story well, be believable and honest.
• Start building an audience early for your crowdsourcing campaign. Successful campaigns often start a year or more in advance of the actual fundraising.
• Understand the fees associated with crowdfunding platforms before you start.
• Seek professional help if you need it.

2. Loans

Banks and credit unions offer many traditional options for funding your business, like small business loans, term loans, lines of credit, and more. A loan is a debt-based way of financing your business, which you will eventually have to pay back with interest.

Pros:  

• The banks generally have no influence on how the money is used.
• Profits remain yours. Banks aren’t equity investors; they don’t get a cut or a percent. All that’s required is that you pay back the original amount, with interest.
• It’s a relatively quick, easy application process. Many banks offer approval within 24 hours and a straightforward online application process.

Cons:  

• Often hard to qualify. If you don’t have excellent credit, collateral, a solid business plan, or if you haven’t been in business very long, it can be difficult to gain approval or to get a good interest rate.  
• You have to pay back the entire loan with interest.
• A loan can affect the valuation of your business because it’s a liability.

Tips for raising funds through loans:  

• Consider all lenders, including some of the newer online lending sources (Upstart, Prosperity, Kabbage, SnapCap, etc.)  
• Find programs that focus on supporting women, including Small Business Administration (SBA) loans and more. These typically offer the most ideal terms.

3. Grants

A great way to fund your business because grants are essentially free money. While there are plenty of benefits, there are also challenges that come with pinning your hopes on a government grant.

Pros:

• Free, free and free. If you’re lucky enough to get a grant, you’ll never have to pay it back.
• Diversity is rewarded. There are grants specifically available to women and minorities.
• There are a variety to choose from. Government grants are available at the federal, state and local level.
• Once you’re awarded one grant, it’s easier to get others.

Cons:  

• Red tape. It can be tough to navigate all the specific and unique requirements. It’s important to know what these are and how they’ll affect your business or plan.
• For-profit businesses take a backseat to non-profit businesses.
• Slow moving. If you need money soon, this is probably not a good option. The process is generally sluggish.

Tips for raising funds through grants:  

• Use all the online resources available to find a grant. The Grants.gov learning center has pretty much everything in one place; there’s even an app you can download to make the process easier.
• Check eligibility to see if you meet the requirements.
• Pay attention to deadlines, focus on completing your application, and apply on time.

Other small business funding considerations

These are just a few of the potential ways to infuse money into your business. You can also explore the pros and cons of using angel investors, for example, or friends and family. No matter what path you take, be sure your finances are stable before you look for funding. Understand the terms and conditions of any money you take and if you need guidance, consider seeking the advice of a mentor before you get started.