Ask ESO: I Need To Fund My Small Business. What Are My Options?
Written by Cecilia Seiter
Entrepreneurs need capital to build their businesses—this much is obvious. What’s not so obvious, however, is embarking on the right path to obtaining those capital funds.
The road to funding varies for every entrepreneur and depends on several factors, including your personal goals, the size of your business, and your growth trajectory. Here, we’ll explore four common options small business owners leverage to gain the capital funds needed to make their visions come to life. Those are:
Venture capital
SBA loans
Business credit cards
Crowdfunding
Let’s take a look at each in detail.
1. Venture Capital
Venture capital is a form of private equity financing. Funding comes from individual investors, known as angel investors, or venture capital firms, who invest in a company in exchange for equity.
Venture capital investments are typically awarded to startups and businesses with high growth potential. Most of the funding is applied to building the infrastructure required for business growth.
Pros:
✅Venture capital investments are not loans, so there’s no payback required.
✅VCs can provide substantial amounts of capital that might not be available through other funding sources. Those funds allow businesses to scale quickly, hire key talent, invest in product development, and enter new markets.
✅VCs typically provide entrepreneurs with resources, connections, and fresh ideas to help grow the business.
Cons:
❌You’ll decrease your ownership stake in your company by providing VCs equity. VCs usually take board seats to influence major decisions and ensure their interests are protected.
❌If your business doesn’t grow as expected, you could be at risk of losing funding.
❌Venture capital is generally pretty difficult to obtain.
2. SBA Loans
SBA loans are a type of small business loan. Financing is issued by a private lender but backed by the Small Business Administration. If you default on the SBA loan, the government pays the lender back.
There are many kinds of SBA loans available, each with its own terms and conditions. For example, SBA microloans grant up to $50,000 and are intended to fund things like inventory, equipment, machinery, and supplies. SBA International Trade loans grant up to $5 million to provide long-term funding for export sales or for strategies to compete with foreign suppliers.
SBA loans are generally awarded to businesses that have been running for at least two years. Lenders also look for strong annual revenue and good credit.
Pros:
✅SBA loans are typically associated with low fees.
✅You’ll get longer loan terms. The repayment terms for SBA loans can extend up to 25 years for real estate and 10 years for working capital.
✅SBA loans are specifically designed to support small businesses that may not qualify for traditional bank loans.
Cons:
❌The application process for SBA loans can be very time-consuming.
❌Borrowers may need to provide regular financial reports and updates to the lender.
❌Eligibility criteria can be extensive.
3. Business credit cards
If you’re just starting out and need quick access to funds, a business credit card can provide you with enough financing to get your operations up and running. This is also a good option if you want to keep your personal and business finances separate.
Pros:
✅ Some business credit cards offer rewards such as cash back, travel points, and discounts on business-related purchases.
✅Business credit cards provide immediate access to credit, which can help you cover unexpected expenses and manage gaps in cash flow.
✅Applications are relatively quick and easy. You could be granted instant approval.
Cons:
❌Business credit cards typically charge high interest rates and annual fees.
❌Many business credit cards require a personal guarantee, meaning the business owner is personally liable for the debt.
❌Business credit cards are not ideal for long-term financing needs or large capital expenditures.
4. Crowdfunding
Crowdfunding campaigns call on your supporters—friends, family, loyal customers, and others who support your business idea—to donate funds. There are a few different ways to go about this.
Many entrepreneurs find funding through rewards-based crowdfunding. Backers contribute money in exchange for rewards, such as products, services, or experiences. This is common on platforms like Kickstarter and Indiegogo. There’s also equity crowdfunding, where backers receive equity in exchange for financial donations. You may also opt for debt-based crowdfunding, in which your backers essentially give you a loan that you’ll need to repay based on set terms.
Pros:
✅ Crowdfunding enables entrepreneurs to raise funds without relying on traditional financing methods like bank loans or venture capital.
✅Crowdfunding can build community of early adopters and loyal supporters who are invested in your project's success.
✅Your business could receive increased visibility and awareness through your campaign promotional activities and audience.
Cons:
❌A successful crowdfunding campaign requires an extensive network, lot of time and dedication, and strong marketing chops.
❌Crowdfunding platforms charge fees (usually a percentage of the funds raised).
❌There’s a chance you won’t hit your funding goal, which can throw a wrench in your business growth strategy.
5. Other Funding Alternatives
The options we’ve outlined above are just a few examples of traditional funding avenues for entrepreneurs. However, traditional funding methods don’t always work for every entrepreneur.
Black entrepreneurs earned less than 1% of VC funding in 2023. Historic and present barriers to funding access continue to put many Black and Brown entrepreneurs at a disadvantage. At ESO, we work to change this narrative and create an equitable entrepreneurship landscape inclusive for everyone passionate about their business idea.
Black and Brown entrepreneurs who successfully complete an ESO incubator program have the opportunity to secure funding with financial products tailored exclusively to their goals. The Capital in the Community Fund (CICF) is not a small business loan, but an investment that provides the flexibility first-time entrepreneurs need to get their business up and running. The CICF offers funding with non-dilutive, zero to low-interest capital from $5,000 - $100,000. Our finance rates are significantly lower than the average small business loan—and our repayment plans are more flexible to boot.
The CICF was designed by Black and Brown entrepreneurs—for Black and Brown entrepreneurs. Our mission is to lower the barrier to access to capital, enriching our communities with business opportunities that lead to collective prosperity.
To learn more about the CICF, or to speak with an expert about growing your business, get in touch with us today.
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