Key takeaways
- There are multiple sources from which you can obtain funding for self-employed individuals, including self-financing, grants, business loans, and more.
- Self-financing or bootstrapping is a viable starting point for your entrepreneurial career as it offers you full control over finances, but it is a limited source of funding.
- You can also apply for government or private grants, such as the Small Business Grants and other sources mentioned on USA.gov.
- The SBA also provides microloans through various intermediaries, including non-profit organizations.
- If you are looking for quick and effortless funding sources, Fintech platforms and online lending agencies are the way to go.
- However, online lending agencies charge high interest rates so make sure to read the fine print before obtaining a loan.
- Entrepreneurial success is heavily dependent on efficient planning of resources, so make sure you focus on resource planning and allocation.
Do you have a million-dollar business idea, but not much money to invest? You are in the same boat as many aspiring entrepreneurs, and many entrepreneurs who are now proud business owners were once in the same boat as you. What sets aspiring entrepreneurs apart is research and knowledge. There are several ways to finance your startup, from startup grants to business growth grants, loans, financiers, and so on.
In this guide, we provide a list of sources offering funding for the self-employed. Moreover, we provide information on the documents you may need to secure financing to bring your business ideas to life or to expand your business operations, besides a degree in entrepreneurship.
What are the funding options for entrepreneurs?
Financing is one of the biggest hurdles that aspiring entrepreneurs face. Without funding, bringing any kind of business idea to life is next to impossible, especially in such a competitive market. However, with adequate planning, mapping out potential income and expenses, and budgeting according to priorities, anything is possible. All you need is a vision, discipline, financial planning capabilities, and, of course, finance.
Related: 5 signs you should pursue entrepreneurship majors.
When it comes to funding your entrepreneurial venture, there are many options that you can use.
Bootstrapping
The first option is bootstrapping, meaning you finance your business yourself. The amount of finance available to you will be limited to what you have saved and can spend on launching your business venture. However, bootstrapping is an attractive option for many new entrepreneurs. Taking out loans and borrowing money from others to finance your business may push you to play it safe so as not to lose others’ investments with risky decisions.
When the money on the line is your own, you might be more relaxed when taking a risk. What is business if not one big risk? However, here the amount you can invest is limited, and you may need supplemental investment a few months or years down the line to expand business operations.
Grants
Grants are funds that the government provides for multiple reasons. These can include boosting the economy, aiding development and research in new fields, providing services to the public, and more. There are several grants in the United States that entrepreneurs can apply for and obtain, provided they qualify. One of the most common ones is the Small Business Grant, which provides financing of up to $50,000 to businesses that qualify.
The United States Chamber of Commerce publishes a list of 100+ companies providing loans and grants for independent contractors and other small businesses. You can browse through the list on your own, or read on to find a list of available self-employed grants.
Microloans
A microloan is a small loan with low interest rates, lent to small businesses over an extended period of time. They are usually categorized as loans of $50,000 and under. According to the US Small Business Administration, the average microloan amount is $13,000. You have to check your eligibility before applying for a microloan to determine how much money you are eligible to borrow.
Other organizations you can apply for a microloan from include banks, online financing platforms, lending agencies, and so on.
Line of credit
A line of credit allows business owners to borrow a preset sum of money. This is a very convenient option, as you do not have to use the entire amount for a specific purpose. You can use what you need and keep the rest as a reserve or for another purpose. Moreover, you can pay back the amount at any time.
However, obtaining a line of credit is not easy. You will have to provide proof of income, at least a couple of years of tax returns, and other supporting documents.
Fintech platforms
Thanks to growing technology, you can now obtain financial services online through digital technologies. FinTech platforms like KIVA, Lending Club, and others provide online loans to anybody who applies. You can either secure a short-term loan or a long-term one, depending on your needs.
The best part about these lending platforms is that even those with a subpar credit record can obtain funding through such platforms. Additionally, you can get a loan within 24 hours, so these online platforms are a great option when you are desperately in need of funds. However, these generally come at high interest rates, so make sure you check the feasibility against your payback ability before borrowing.
Related: What does a career in entrepreneurship look like?
Sources to secure funding for self-employed individuals
Whether you are looking for grants for independent contractors, self-employed individuals, women entrepreneurs, or so on, here are some options you can explore. Make sure you read the eligibility requirements, repayment terms, and fine print before committing. Moreover, sending an application does not guarantee that you will get the loan, so don’t count your chickens before they hatch.
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US Small Business Administration (SBA)
The US SBA is one of the most popular options for loans for small business owners. The SBA also has many local affiliates, whose purpose is to provide loans to help local communities. These loans can come in many forms, from loans for independent contractors providing affordable housing to lower-income groups or marginalized communities, or helping individuals start their small businesses, and so on.
Required documents:
- 2 years of tax returns
- Proof of income (statements, tax returns, other financial documents)
- Detailed business plan
- Financial projections
- Clear reason for the loan
If you meet the eligibility requirements, you can get a loan of up to $50,000.
National Association for the Self-Employed
If you are in need of financing to grow or expand your business, the National Association for the Self-Employed offers substantial funding for self-employed people. If you meet the eligibility criteria and are able to provide all required documents, you can secure a loan of up to $10 million. The purpose of the organization is to ensure the provision of funding to small businesses to grow, maintain business operations, and more.
Required documents:
- Bank statements of the last 4 months
- Business tax returns
- Business debt schedule
- Business license
- Voided checks
USA.gov
If your business idea is innovative and can help the government tackle pressing challenges, then USA.gov is the place for you. Here, you can find information on available government grants and loans for personal use and business organizations. There are no set eligibility requirements for these loans, and the required documentation varies, depending on the amount required, purpose of the loan, and the applicant’s credit record, and more.
For more information, visit the website: www.usa.gov/money
Microloans
There are several organizations in the United States, provide microloans to small business owners. These include banks, local non-profit organizations, the US Small Business Administration (through SBA intermediaries), and other organizations. Because you need to work with an SBA-approved intermediary and not the SBA itself, the required documents vary by organization.
You can find microlenders here: sba.gov/funding-programs/loans/microloans/list-microlenders
For more information, you can visit the SBA site: www.sba.gov/funding-programs/loans/microloans
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How to prepare for self-employed grants?
Securing finance for your small business is no easy feat. Yes, there are government agencies out there to help entrepreneurial activity as it boosts the economy, there are several applicants, and the competition is fierce. So, what can you do to stand out? Be prepared! Here’s exactly how to do that.
- Separate your business and personal accounts – you should be able to paint a clear picture of your business finances.
- Create a solid business plan – Don’t just go in there with a business idea, create a plan, have a vision, and an actionable path for achievable goals. Show that you have done your work and are not just swinging in the dark.
- Track your income and expenses and document everything! – This is one of the most important things you will do for your business. You should know how much income you expect to make in 2 years and what your projected expenses for the same duration are. We suggest you always overestimate your expenses and underestimate your income.
- Work on improving your credit score – Your credit score determines how trustworthy you are when it comes to repaying your loans, or your creditworthiness. If you have a history of defaulting on your loans or delaying payments, it becomes harder for lenders to trust you.
Related: What are the career options and jobs for entrepreneurship degree holders?
Do your research – Choose the right source of funding for self-employed individuals!
Embarking on an entrepreneurial journey is a brave choice and is definitely not for the faint-hearted. Entrepreneurs are, by nature, resilient, hardworking, driven visionaries, willing to put in extra effort to bring their business ideas to fruition. It is important to note that in the entrepreneurial field, knowledge and connections are everything.
Taking advantage of the right opportunity at the right time can give you the edge you need to succeed in a very competitive market. Luckily, there are many sources providing funding for self-employed individuals. Make sure you do your research and plan your finances wisely, for if you don’t, even millions of dollars won’t be enough.