Understanding Financing Options for Women Entrepreneurs

Written by BrooklynFaulkner Published in

Are you contemplating starting your own business, or did you recently get one off the ground? If so, have you tried pitching your business idea to investors? When is it best to take out a loan, and when does it make sense to apply for a grant or start a crowdsourcing campaign via social media? When it comes to keeping a steady flow of cash going year-round, what are your go-to strategies?

Being able to answer questions like these can help you to more fully prepare for any financial needs you may be experiencing or that may occur in the future. Especially if you’re just getting started, you may not be aware of the variety of financing options available to you. These include loans from a variety of sources, grants, competitions, crowdfunding, and investors. Here are a few ideas and best practices for you to consider.

Loans

Sometimes your best option in the early stages of a business is to accept money from friends or family. Often these people will be happy to support your entrepreneurial spirit. They may offer more flexible terms than a traditional loan, or they might simply consider the money a gift. Either way, it’s a good idea to record everything in writing and, in some cases, within a legal document to ensure that everyone’s expectations are in order. It’s nice when someone you know can contribute to your efforts, but you could face a difficult situation later if they believe they have some authority in how your business is run.

There are a variety of financial institutions that will offer an array of loans with vastly different terms. It’s important to put in the research to find a lender you trust. One option is to apply for a loan from the Small Business Administration (SBA). Typically the government guarantees to repay 75 to 90 percent of these, reducing your financial risk. The downside is that these require some extra fees, additional paperwork, and it takes longer to get approval.

As with SBA loans, banks require a detailed business plan during the application process, though their terms for how the money is used aren’t as strict. Bank loans typically carry low interest rates, and the approval process can often be faster. The drawback to these loans is that they include shorter repayment schedules. It’s also somewhat difficult to get approved for a bank loan.

If your business doesn’t have a stable financial history, there are a number of alternative lenders that have even less strict requirements for approval. Because many of these lenders offer online applications, it’s possible they’ll approve your loan the same day you apply and provide funding much faster. Unfortunately, the interest rates for these loans tend to be significantly higher. It’s worth exploring the other loan options first.

Grants

The U.S. government offers some federal grants for small businesses that you might be able to take advantage of. Unlike loans, these don’t have to be repaid, so it’s essentially an opportunity to get free money for your business. However, these grants are restrictive about which businesses qualify and how they use the money, and the funds cannot be used for starting or expanding your business or paying off debt.

To qualify, you need to be involved with highly specialized research or some other cause related to a particular government agency’s agenda. For example, there are many grants for businesses involved in medical research, education, and technology. It’s also important to note that these grants are highly competitive and take weeks or months to process your application.

If you are approved for a federal or local grant, you may have to send regular progress reports to the agency. You might even have to match the grant funds with a separate loan. While it’s a complicated and competitive process, it is at least worth looking into grants you might qualify for.

Competitions

Participating in small business competitions offers another opportunity to qualify for free money. They also provide the chance for you to reflect on and refine your business plan, practice pitching your services, and network with industry experts and other small business owners. When searching for competitions, seek those that focus on your particular market or industry. This will not only increase your chances of winning, but it will ensure the feedback you receive from judges is valuable and highly relevant to your business. You’ll also stand a better chance of meeting other professionals who might serve as a resource to you later on.

Crowdfunding

The trend of individuals and businesses using crowdfunding to raise money for their projects and organizations has exploded in recent years. This may be a particularly useful tool for your fundraising efforts as women are 32 percent more successful at crowdfunding than men. You can take advantage of a variety of platforms in order to share your company’s story, goals, and services and motivate people to contribute small and large amounts to your business.

In some cases, offering a reward system for people who donate a certain amount of money can work like a pre-order for your product, helping to start or expand your business while growing your customer base. The people who invest in your crowdfunding campaign will also be more likely to engage with your brand, offering useful feedback about your product and sharing it with their friends.

Some crowdfunding sites charge for using their services, or they require that you raise your entire goal in order to receive any money. Be sure to read their terms carefully before creating a campaign. Also keep in mind, successful crowdfunding takes a lot of time, effort, and planning. One of the best ways to prepare is to delve into some successful campaigns. Engage with their videos and other content in order to identify what worked well for them. Then carefully consider what you have the budget and resources to accomplish and sustain.

Investors

As with loans, reaching out to friends and family first can be a great way to find willing investors. Again, be sure to create a legal document describing the terms of the investment in order to avoid any confusion later. You can also reach out to people within your professional networks who may invest in your business or could connect you with potential investors. Beyond your own connections, you can contact business leaders in your industry or community and ask for a referral. There are also networks specifically designed to connect small businesses with investors.

In exchange for their funding, investors may take on partial ownership of your business. If you want to maintain exclusive control of your company, seeking investors may not be the way to go. However, investors who decide to take an active role can be a great resource to your business. Consider that partnering with someone who is familiar with your industry or has other skills or connections that will serve your business well could help you to build a much stronger foundation for your business.

It’s important to understand when to reach out to investors. Unfortunately, if your business is already struggling financially or going through some other crisis, it’s not likely you’ll convince anyone to invest in your business. Investors’ main motivation isn’t to come to your rescue. They want to identify opportunities to make a profit with the least amount of risk. To convince anyone to back your business, you’ll need to create a clear business plan, keep accurate financial records, and make sure any legal documents are up to date.

Managing Cash Flow

Raising funds initially for a new business or an expansion can seem like the most challenging part of financing your venture. However, it’s even more crucial that you manage the money wisely once you’ve raised it. While it may be wise to outsource the financial aspects of your business, having some basic accounting knowledge can help you to understand and manage your cash flow.

Mistakes with cash flow are one of the leading reasons why businesses fail. Especially as you begin to see growth, a number of problems can arise. This includes overestimating future sales, spending too much in your initial investments in equipment and materials, failing to follow up promptly regarding unpaid invoices, or simply not tracking your cash flow. Even if your sales are increasing, an imbalance in the overhead costs for your business can quickly drain your funds.

Beyond how you manage your finances under normal circumstances, it’s important to consider the many factors that can put your financial security at risk, identify your assets, and create a plan for recovery should something go wrong. Allowing your business to fail can result in much more than a broken dream and wounded pride. If you have investors and loans to repay, you could be in serious financial trouble long after your business goes under.

Today, women run 30 percent of businesses worldwide and just 5 percent of the largest companies. While you may not expect your business to grow to compete with the world’s most powerful companies, the efforts you put into creating a successful business model and representing women business leaders will help these numbers to continue to grow. By considering the variety of options available for financing your business, you stand the best chance of getting the funds you need and achieving your entrepreneurial goals.

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