5 Sources of Finance for Small Tech Businesses

Featured article by Emily Peyton

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It’s sad how many would-be entrepreneurs hold back from taking the first step to owning their own business. In fact, one survey said that over 30% of Americans are more afraid of starting a new business than jumping out of an airplane.

That’s right, careening to the ground without a parachute is still less horrifying than taking out a loan for a business! Seriously, new business development is falling, by as much as 65% according to Entrepreneur.com.

Imagine all the great companies and products that COULD have been made and could have flourished, if only getting capital wasn’t an issue. But what if there was a way to finance your small tech business that you haven’t thought of yet?

In this article, we’re going to talk about five sources of financing for small tech businesses that you may not have thought of yet. 

1. Government Funding and Subsidies

The ideal scenario, of course, is if the government found a reason to finance your small business. Grants and subsidies are given every year, though the criteria tend to be strict.

Usually, companies that qualify for government grants, or loans (which have lower interest rates than commercial lenders) must have a minority owner (African-American, Latino, Indigenous, LGBTQ) and should also demonstrate a history of stability in business.

That’s right, you may have to start a successful business to get a grant. Start your search by reading more about The Small Business Administration. 

2. Banks

The most popular type of loan and yet one that’s becoming increasingly difficult to get. You must have good credit, acceptable annual turnover, and show a detailed business plan that shows how you plan to use the money. 

3. Venture Capitalists

Getting capital funding from private equity firms is another option, and venture capitalists are especially interested in technology-based companies.

Investing companies specifically look for companies in their early stages, and right about the time before the growth explodes. That is when the new technology changes the world and the way we do business.

Read about how cloud computing is a growing avenue among venture capitalists in fintech.

It’s similar to angel investment, but more within reach to the average business owner. If you’re willing to give venture capitalists partial ownership interest in your business, you can count on funding at the right time. But that’s a risk all its own.

4. Crowdfunding

Crowdfunding was wildly successful several years ago, because of its novelty. But nowadays, it takes a lot more creativity and financial responsibility to convince others to help pay your bills.

Social media does allow tech business owners the chance to reach a larger population of potential investors, and drastically reduces the minimum cost.

Many small contributions can add up quickly. You don’t have to sacrifice ownership of the business, but many crowdfunding investors now expect some kind of reward-based system for their support.

The good news is that technology, especially entertainment-based technology, tends to do well on crowdfunding platforms. Read about how some IT designers are hiring marketing experts to start a crowdfunding launch. 

5. Credit Lines and Online Lenders

Credit card funding has increased dramatically, even though the interest rates are generally high. An estimated 30% of small business owners use credit cards as a major or minor part of their investment capital.

No wonder online lenders are stepping up and offering better terms than most credit card companies and even banks.

Instead of taking out cash for credit, you could get a loan from an online brokerage and pay less in interest while also taking advantage of perks, reward points, and cashback opportunities.

Companies like SoFI advise anyone taking out credit to use this credit card interest calculator to determine if you’re paying too much in credit card debt. If your contract is for 16% interest or over, you could go with an online lender and get rates as low as 7%. 

Business is on Tech’s Side!

Sometimes entrepreneurial minds think raising capital is impossible, and so reality silences their dream. But what if you looked at things differently? What if raising capital for an emerging tech company, with a clear vision of the future, was just an obstacle to overcome?

Follow your ambitions and look into your full range of financing options.