6 Tips for Women Raising Money

You’ve worked hard, built a good reputation, found a niche where you can compete and are ready to take the leap and open your own business. But one thing is standing in your way: Money.

Business financing is one of the biggest obstacles that small business owners face. And although in 2018 a woman-owned business received the world’s largest-ever single funding; Forbes reported in mid-2019 that organizations with female-only founders received just 2 percent of the venture capital funding available. However, times are changing. Women-owned businesses are surging, and there are more small business financing options today than ever before, including:

• Small business loans designed specifically for female entrepreneurs
• Women funding women programs
• Venture capital firms that focus on women-owned businesses
• Angel investments
• Crowdfunding
• Business grants for women

However, these programs are highly competitive. So how can you set yourself up for success in such a crowded field?

The answer: By creating a strategic financial plan, understanding your funding options, making connections, telling your story and identifying the right resources.

Let’s take a look at what that all means and why it’s so important.

Create a plan for your business financing

Before you even begin to look into small business loans and other funding options, you should define your funding strategy and outline the financial needs of your business over the next few years. This way, you can prioritize your needs now and in the future.

By going through the exercise, you not only gain clarity on your own needs and goals, but you can create a document that allows lenders and potential investors to understand why you need funding. Creating a plan helps identify earlier on in the process whether a relationship should be pursued and, ultimately, helps you both make more informed decisions.

Know your funding options

Although small business loans can be a great way to get the funding you need, there are alternatives. Below are just a few options (and facts) to consider as you seek additional financing.  

• Loans. In general, small business loans, whether a bank or another organization funds them, have to be paid back over a fixed period. In addition:
• Loan amounts will accrue interest, usually starting on the day of disbursement.
• Startup business loans can be more challenging to obtain because your company’s profitability isn’t established.
• Collateral, like your home, may be required to secure the loan.  
• Friends and family. Your friends and family are in a position to help fund your business; it could be a boon. While this scenario does have several upsides, they’re also not without their risks.
• Pros:
• Typically less structured
• Repayment may be more flexible (and forgiving) than bank loans
• Can bolster your resolve because those you care about believe in you
• Cons:
• It must be appropriately structured for tax purposes. If the IRS sees the loan as a gift, it could have negative tax implications. (Always speak with your accountant or business advisor for assistance in setting up a small business loan from friends and family.)
• Strained relationships if payments aren’t made as promised.
• Unwanted advice from lenders, friends and family who feel some level of ownership if boundaries aren’t set.
• Additional stress because you don’t want to let down those you know
• Venture capital. Using an equity-based partnership where the venture capitalist receives a percentage of the company in return for their investment, you can not only get the small business financing you need, but you can find a true partner to help you grow. However, when considering VC funding, it’s worth noting that:
• The process is selective because it means a commitment to being bought or going public
• You’ll be working with the organization as a partner, so you’ll probably have less freedom to make decisions