Here are proven ways to finance your small business, with advice from several female founders.
By: Elaine Pofeldt
Millie, a content program about women and money, is licensed from Dotdash Meredith, publisher of Real Simple, InStyle, Investopedia, The Balance and more.
When Alicia Schiro decided to start her event-planning company, Aced It Events, in 2015, there was one big obstacle: She needed to come up with about $10,000 to launch the business.
Excited about the idea of becoming her own boss, she set aside as much of her paychecks as she could to cover her initial costs—forming an LLC, hiring an accountant, subscribing to an invoicing system for event planners and paying for business insurance. She then charged additional expenses on her personal credit cards. Once on her own, she worked from her apartment to keep overhead down and joined SoHo House in New York City, a private club where she could entertain and meet with clients.
Prior to joining her previous firm where she did similar work, Schiro had the foresight to negotiate an agreement that would let her retain her own clients. This allowed her to keep cash flowing after she left that company. Six years in, she grew Aced It Events into a full-fledged business with $1.5 million in annual revenue and three employees.
Her advice to other women who want to fund their dream business: “Know how much money you need to save and try to get there before leaving another job,” she says. “You’ve got to hustle.”
Women-owned businesses are on the rise
More women are starting businesses than ever before. There are approximately 1.3 million women-owned businesses that have an estimated 10.5 million employees, according to the U.S. Census Bureau.
Indeed, many women used the changes that the pandemic brought—such as a job loss or a shift in children’s schedules—as an opportunity to dust off their entrepreneurial dreams, says Jeanne Hardy, president and founder of Brooklyn, New York-based Creative Business Inc., which advises entrepreneurs on how to build a sustainable business.
But funding a small business can be challenging, particularly for women, because of factors like lack of access to the clubby networks that plug entrepreneurs into startup funding and unconscious bias by investors. One congressional report found that women were more likely than men to have their business loan applications denied.
At the same time, as women-owned businesses get more attention, financial backers and others are trying to solve for the inequities. Andrew Sherman, a partner at Washington, D.C. law firm Brown Rudnick, who advises businesses of all sizes, finds hope in the increasing number of investors focusing on women founders, as well as the expanding number of coaching programs and mentorship opportunities. “The trends are moving in the right direction,” he says.
Most founders follow one of two funding paths. One is a traditional small business scenario where the initial costs range from a few hundred dollars to tens of thousands of dollars. The other is a startup model, which aims to scale into a well-known brand with a substantial team. (Rent the Runway, Rodan + Fields, Bumble and Orangetheory are examples of successful startups from female founders.)
With either a self-owned small business or a startup seeking investors, the path to funding success remains the same: figure out how much money you need to raise and what type of financial assistance would work best, then set yourself up to secure it.
“It’s about taking charge, seeing what needs to be done and doing it,” says Susana Fonticoba, founder of Clear Path Strategy, a business strategy consultancy in East Hanover, N.J.
Financing strategies for small businesses
If you’re starting a traditional small business like an e-commerce store, restaurant, yoga studio or solo professional services firm, raising money is a lot more straightforward than what you might have seen on Shark Tank.
Like Schiro, you may be able to come up with most of what you need by saving money from your day job. If you're part of a two-income couple, another option is to cut back on expenses and to live on your partner’s income while funding the business with your salary. Some entrepreneurs have also used proceeds from selling a property, or even the money from an inheritance, to get started.
Here’s an up-close look at some typical funding options:
Bootstrapping. This means starting the business on a shoestring and funding its growth with the money you make from sales. The key to succeeding with this approach is charging enough. “Most women business owners I know are underpricing,” says Fonticoba. A good rule of thumb for a professional service is to add 30% to your fee in order to cover your operating costs, adds Hardy. Otherwise, you’ll have limited profit and may not be able to invest in growth.
Credit card financing. Pay down your credit cards during the months leading up to your launch date, so you have some room on them for business purchases, advises Schiro. “You don’t want to start a business if you’re already in debt,” she says. “You’re going to have to put stuff on those cards.” Reducing any outstanding balances can also boost your credit score. In turn, this could help you qualify for low-interest cards or zero-percent teaser offers that’ll help finance business purchases. Be aware that whether you use personal or small business cards, the cardholder agreement almost always includes a personal guarantee, meaning you will owe the money personally, even if you later close the business.
Friends and family financing. Getting a loan from family or friends is another traditional funding route. To make your case and show you’re serious, share a formal business plan with any potential lender. The U.S. Small Business Administration (SBA) offers business plan templates; so does the small business mentoring group SCORE. The SBA’s Women’s Business Centers can also provide guidance. When borrowing money, always create a clear repayment schedule. Tools such as ZimpleMoney or an agreement called a promissory note can help to set that up. Another option: Invite your inner circle to invest in your business. As investors, they provide cash in exchange for an ownership stake that will potentially appreciate as your business grows. Laws around selling shares of a business are complicated, so if you go this route, you’ll need legal advice.
Grants. Since the pandemic, more organizations have been offering these allowances—which don’t have to be paid back—to small businesses from underrepresented groups, such as women and people of color. “Many corporations have stepped up and asked, ‘Because of the climate we’re in, what can we do?’” says Bertha Garcia-Robinson, president of the New Jersey Association of Women Business Owners. Some grants support business owners in specific industries or expertise areas. To stay abreast of new grant programs, sign up for the free weekly newsletter at Hello Alice, a small-business hub that helps aspiring entrepreneurs find funding and advice.
Manufacturer financing. What if you have almost no startup capital? One fast-growing trend is to raise money by selling products—such as T-shirts, tote bags or other goods emblazoned with your own designs—on a print-on-demand site such as Spring or Printify, where you can queue up products with no upfront costs. To go this route, you’ll need to set up an e-commerce store on a platform like Shopify. The print-on-demand companies will manufacture the orders your customers place and take a cut of each sale before sending you the rest of the proceeds. If you lack artistic talent, you can hire a freelance designer through websites such as 99designs and Upwork.
Crowdfunding. If you’ve invented a product and need money to manufacture it, crowdfunding can be an ideal way to raise money. You share a photo or illustration of your prototype on a crowdfunding site such as Kickstarter or Indiegogo, allow customers to place preorders and then use that money to hire a manufacturer.
Vanessa Jeswani and Kish Vasnani, Miami-based entrepreneurs who sell travel bags and accessories through their e-commerce business Nomad Lane, had spectacular success with this approach. After hiring a freelancer for $400 on Upwork to design their Bento Bag—a laptop bag designed to fit under an airplane seat—they launched an Indiegogo campaign to raise money to make it. The couple hoped to come away with $15,000, but raised $2.1 million.
Their campaign took off thanks to efforts such as doing a professional photoshoot of the bag, creating a pre-launch video and taking out Facebook ads. “In terms of making a campaign successful, a lot of the work is done ahead of time,” says Jeswani, who previously worked in corporate marketing.
Loans. For businesses that have a proven model, such as a franchise, loans are a possibility, especially if you reach out to a local bank. “There might be community banks willing to lend to small businesses,” says Sherman. Loans from private lenders, like a bank but backed by the SBA, are another option.
You can also seek out nonprofit microfinance organizations, which provide smaller loans. In 2003, Claudia Mirza launched Akorbi, a Plano, Texas-based provider of language translation, interpretation and technology services, with a combination of a $13,000 loan from the microfinancing provider Accion Texas (now known as LiftFund), as well as credit cards and a personal line of credit. Akorbi is now 500 people strong and one of the largest women-owned businesses in its field in the United States.
Funding options for startups
Financing a startup isn’t much different from financing a conventional small business, at least at the beginning. If you want to turn your concept into the next hot brand, you’ll need to progressively raise larger amounts of money to cover expanding costs such as marketing and growing your team.
Here are a few fundraising options to consider:
Prize money. Once you’ve developed a great business plan and a winning pitch for your business, it’s possible to raise a substantial amount of prize money from business plan competitions and pitch competitions. For instance, in the 2024 Rice Business Plan Competition—one of the biggest ones—the top prize is a $350,000 infusion from an investment firm. Typically, the judges are potential investors, so these contests can be a way to build relationships that could later lead to more funding. A good place to find out about competitions is Eventbrite, where many of the universities and investment funds that host them offer tickets.
Angel investors. These private investors typically buy an ownership stake, during the early stage of your business’ development, with their funding known as “seed capital.” It can take a good deal of research and some savvy networking to find an angel investor. How to get started: ask other entrepreneurs for connections, tap into local business development centers and check out the websites of angel networks such as Golden Seeds, 37 Angels and 500 Women.
Equity crowdfunding. Not all crowdfunding sites focus on taking preorders. Some will help you sell equity to groups of accredited investors. The largest include CircleUp, Netcapital and Republic. The site IFundWomen is another good source of information.
Venture capitalists. VCs are professional investors who provide funding anywhere from the seed stage to the point where a business gets ready to go public. The National Venture Capital Association and Crunchbase have directories you can search for potential backers. Keep in mind that getting VC funding might be a long shot, especially for women, who captured a mere 1.9% of total startup investment from VCs in the United States in 2022, according to Crunchbase. And for many businesses, pursuing this type of funding can eat up time best spent seeking other types of financing, says Elizabeth MacBride, co-author of The New Builders: Face to Face with the True Future of Business. For her part, MacBride has focused mainly on raising grant money for her own startup publication, Times of Entrepreneurship.
Accelerator programs. There are numerous accelerator programs that help to fast-track growth by offering resources such as coaching and capital. For instance, Springboard Enterprises prepares women for fundraising, while TechStars helps startups scale by providing seed funding, mentoring and office space.
Elaine Pofeldt, author of The Million-Dollar, One-Person Business, is a journalist who specializes in entrepreneurship.
Three things to do
- Find out what questions to ask before starting a small business.
- Learn how the economic climate can affect the launch of a business.
- Learn about financing options for your small business.
