How do women entrepreneurs finance their small businesses in 2019? According to the 650 female small business owners surveyed in Visa’s State of Female Entrepreneurship study, 61% chose to self-fund their own startup.
The decision to self-fund, according to the report, is one that the majority of women in business often make out of necessity. Those surveyed reported it was difficult to obtain the funding they needed for their companies—only 25% of female entrepreneurs received any type of funding from investors. And in some cases, their funding efforts weren’t even provided in full: 8% received only partial funding from investors.
The good news for female entrepreneurs unable to get outside financing? There are several financing options available for self-funding. Women who are having difficulty obtaining capital through traditional investors should consider these funding methods instead.
Bootstrap financing
Nearly two-thirds of the women surveyed by Visa self-funded their businesses. While the numbers do not specifically point to bootstrapping as an option, I like to think many opt for this financing route.
Bootstrapping, if you’re not familiar with the term, is practically the definition of self-funding. You use your existing finances to fund your small business. Some entrepreneurs utilize their savings, dip into retirement accounts, and/or use personal credit cards.
One requirement of bootstrapping? You must be able to stick to a budget to make it work for you and your business. Be mindful of where every dollar is going and the return on any investments. It may take a bit of time for your business to create a steady cash flow and to get back the money you’ve spent, so examine your existing finances carefully first. If you do not have enough money to self-fund your company, you may need to seek out other financial options.
Grants
Grants are a hugely popular self-funding method. After all, who doesn’t want free money for their business? If you apply for and receive a grant, you can put that funding towards your business and are under no obligation to repay it back.
Since grants are highly competitive, don’t think your business will be the only one applying. Most grant applications come with a list of requirements that must be followed in order to be eligible to apply and be a recipient of said grant, so it’s important to be honest when applying.
\Remember to research the reputation of the funding source, too. It is very easy to Google “small business grants” to find them, but due diligence must be conducted to separate real grants from scams. According to the Federal Trade Commission, nearly 23,000 people have lost money to scammers posing as “free government grants.” The FTC advises that individuals seeking grants avoid giving out their bank account information to people they do not know, watch out for government grants that require a payment, and be mindful of phone calls that may appear to come from Washington, DC, that could be scams.
You may want to consider skipping search engines altogether and going straight to a reputable source. Check in with a source like grants.gov for a list of federal grant-making agencies and funding opportunities.
Don’t forget to consider the funding timeline for your small business. Should you be awarded a grant, will it arrive in time to secure funding for your business, especially if you’re in a pinch for capital?
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SBA loans
The State of Female Entrepreneurship study revealed that 10% of female entrepreneurs took out small business loans to fund their companies.
Taking out a loan is serious business. A loan is a self-funding method, in that you take one out but must also agree to repay it back in full according to its terms. Several factors must be examined before you can even apply for one. Which financial institution will you apply for a loan at? How much money should you borrow? What’s the interest rate and what are the loan’s repayment period terms?
While this decision will vary depending on an entrepreneur’s needs, a good place to start if you have questions is the Small Business Administration (SBA). Did you know the SBA offers funding programs for women entrepreneurs? Here’s how it works.
The SBA does not directly give businesses money. Instead it reduces the risk of lending by providing lenders with a guarantee to pay back a portion of the loan if an entrepreneur defaults on the loan. This, in turn, makes it easier for businesses to receive loans. To find a lender, the SBA has a free online referral tool called Lender Match that connects small businesses with participating SBA-approved lenders.
An SBA-guaranteed loan has many benefits, including they often come with lower interest rates, as well as lower fees and down payments. Some loans even feature counseling from an experienced professional. (Check in with the SBA to see which loans include continued support that can help you start and run your business!) This benefit helps educate entrepreneurs about the financial support they have received and how the SBA loan will help them grow and maintain their business over time.
Should you self-fund?
Whether you decide to self-fund through bootstrapping, grant applications, or applying for SBA loans, don’t look at self-funding as an impossibility for your small business.
Instead, approach self-funding with a carefully laid out plan. Keep a bit more funding saved up than you think you may need, carefully examine the ROI of where your dollars are going, and maintain a positive attitude that you can, in fact, make this option work for you and your business.
RELATED: 10 Reasons Why Women Kick Butt in Business
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