One of the most common emails I get in my inbox is along the lines of “I have $50, how do I start my business?” or “I can’t afford the bigger soap molds I need to increase production, help!” or “I really want to get custom packaging for my soap, but boxes are so expensive! Can I get a loan for it?”
First and foremost, I have something super important to say: being an entrepreneur is about making what you have work.
Whether it’s $20 and a piece of plywood or $10 and some kitchen equipment, you absolutely can make a go at business without a huge investment upfront.
I’ve done it, and so have hundreds (more like, tens of thousands) of other soapmakers.
I strongly recommend skipping outside funding unless:
- you are 200% sure you want to take this route
- you have a plan to pay a loan off as quickly as possible (if you are lending)
- you are not spending huge amounts of time away from growing your business at a chance for cash (for instance, contests that require ridiculous amounts of social media whoring)
That being said… I do understand the difficulties in obtaining funding or the chicken and the egg issues of increasing production or scaling business as a maker. Heck, I’ve obtained outside funding in a variety of ways – and that’s what this little article is really about.
Conventional loans through a bank require a business plan (which, if I’m honest, I think traditional business plans are a joke), plus you have the hoops to jump through surrounding creditworthiness. All in all, these were never an option for me, so I found four other ways to get alternative funding.
Let’s dish on alternative funding methods & see if you can find your match:
Microloans are the closest thing to traditional loans as you can get, except they are meant to be tiny little infusions of capital for your biz. Microloans tend to be $25,000 or less, and can be a little easier to get a hold of.
If you are in the United States, the Small Business Administration has a microloan program that might be worth looking into, but there are alternatives to these more traditional style microloans, too!
One that I’ve personally used (and would recommend to any other entrepreneur) is Paypal’s Working Capital program.
If you take payments via Paypal, you can apply for a Working Capital loan that comes with a flat fee instead of an interest rate (bonus!) The amount of money you can snag in a Working Capital loan is dependent on your Paypal account history, including the average amount of income.
With Working Capital, your payments on the microloan are automatically deducted from your incoming payments at a flat percentage rate you choose (ranging from 10% to 30%, if I recall correctly.)
If you are a wholesale based business, there are also microloans in the form of an advance on outstanding invoices. If you land in a larger retailer that requires Net terms, this might be the option you are looking for. (Again, these two aren’t options I’ve personally used, but check out Fundbox and BlueVine, if this sounds like what you are looking for.)
Peer to Peer Loans allow you to lean on peers, connecting lenders and borrowers, on the backs of traditional lenders. Each network of peer-to-peer loans works a little differently, but for the most part, they’re easier to qualify for.
I have quite a few entrepreneurial friends who have landed KIVA Zip loans, which are 0% interest microloans that are handled via a peer-to-peer network. Every single person I know who has obtained funding through a KIVA Zip loan said they would recommend it to others.
Crowd-funding is where you really lean on your ability to market your business and ideas, while snagging financial support from peers and people in your network. Crowd-funding completely takes banks out of the equation, and requires you to be able to sell yourself to real people – just like you.
I’ve personally ran a successful crowd-funding campaign that kick started my second soap company, Gratitude Soapery (which is part of the reason I gave that company away to the community), and I can tell you right now that crowd-funding takes a lot of work. (Understatement.)
The most important thing I learned during my round of crowd-funding was not the gold star ability to market myself (I’m pretty good at that already, I think!), but the need to get over my fear of asking – for support, help, guidance, and of course, for money. When you crowd-fund, you have to be confident in your reasoning and worthiness to ask and ask a lot. That’s actually a pretty big stumbling block for a lot of people.
And last but not least, the most popular means I’ve seen around the soapmaking community for alternative funding? Grants & contests. There are a huge variety of these, but the most popular that you might be familiar with is the Martha Stewart American Made Awards.
Some others to look into are brought to you by Fedex, Intuit, and NASE (National Association for the Self Employed.) Grasshopper keeps a running list of startup competitions that’s pretty handy (but a good chunk of them are tech-centric.)
The biggest thing about seeking alternative funding through contests that I warn about is to be careful about the time investment you are going to sink into them, and consider if they are truly worth it. Would you be better off spending that time in the trenches directly working on your business? The last thing you need is to waste three weeks constantly promoting someone’s contest for the chance to win a couple thousand dollars, when a decent weekend craft show or new stockist account can do the same thing for you.
So, there we have it: four alternative funding methods for your small business…
Just make sure to really think about why you are seeking outside funding and carefully weigh the pros and cons. Can you TPE it instead? You might want to consider it!
*And please don’t ask me about accounting or taxes, that’s not my deal – seek out a CPA or tax professional. I really can’t help you with the specifics (I’m not qualified), but I hope this list helps get those wheels in your head turning.