How to Raise Money for a Small Business?

5 min read · 6 years ago


It had been a bad day at Honestly Goods. The kiln had misfired; everything had come out smaller and grayer than expected. The 7-inch plates had shrunk to the size of coasters. The porcelain pears looked more like walnuts. The entire batch was ruined.

“Just throw them out and start over,” sighed Mary Kral, founder of the 4-person San Francisco-based maker of custom handmade gifts.

All around her, metal racks were filled with plates, t-shirts, and towels featuring pithy, occasionally NSFW sayings, like “Fortune favors the bold who get s*** done” and “Where the f*** are my keys?” All were designed by Kral and produced in Honestly’s 1100-square foot warehouse, a converted garage in one of the city’s semi-industrial neighborhoods.

“I’ve always been someone who says what I mean,” says Kral. “And it kind of evolved from there.”

Honestly’s motto is “Artistry with attitude,” which Kral has in spades. But for her business to make it to the next level what she really needs is money.

An honest enterprise

Like a lot of mom-and-pop businesses, Honestly started as a hobby.

Kral had operated an Etsy store under her own name for years. After a positive reception at the San Francisco Gift Show in February 2015, she decided to make Mary Kral Designs a real business. She rebranded the company as Honestly Goods. Her husband, Andrew Swinnerton, quit his job as an IT manager for a Web services firm to work full time for Honestly; Mary kept hers as personal assistant to a venture capitalist. They took out a second mortgage on their home, rented warehouse space, bought equipment, and hired a handful of part-time employees.

Honestly’s customers run the gamut from people looking for custom party favors to Napa Valley wineries to Hollywood; there is no shortage of demand, says Swinnerton. But between San Francisco’s astronomical rents and the cost of paying employees a living wage, the company has yet to turn a profit.

Now the money from the second mortgage was running out. Honestly needed to survive long enough to make it to the National Gift Show in Atlanta this summer, where it hoped to attract attention from major national retailers. If successful, the future looked promising.

Honestly had several options for additional funding – taking out more loans, seeking private equity, hitting up friends and family, even crowdfunding. But which path is the right one for growing mom and pop shops like theirs? There is no simple, one-size-fits-all answer.

Bank loans

The way most small businesses grow is by taking on debt. But whether you can qualify for a personal or business loan depends a lot on how mature and profitable your business is, says Evan Singer, president  SmartBiz, an online marketplace for Small Business Administration loans.   “If your business is just starting out and you have no revenues to show, it can be very difficult to get a business loan,” says Singer. “A personal loan is probably a better option.” Online marketplaces like Discover or peer-to-peer services like LendingClub make it easy to shop for personal loans, he adds.

Applying for business loans can be a lengthy and painful process, says Rania Succar, director of Intuit’s QuickBooks Financing. But if your business uses Quickbooks, Succar says you can eliminate a lot of hassle by applying for a loan via that accounting suite’s financing option. With your consent, lenders on the Quickbooks Financing platform can see the complete picture of your business through your company’s books.

“It takes small businesses an average of 33 hours doing the paperwork for a loan, and only about 35 percent get approved,” says Succar. “We’ve had customers tell us they went from application to approval in around 4 hours.”


An alternative to traditional banks, micro lenders offer funding for businesses that might not otherwise qualify for a bank loan, says Dr. Tamara Monosoff, author of The Mom Inventor’s Handbook (2nd Edition).

Most micro lenders are nonprofits, and many have a particular focus. For example, Accion USA  offers loans of up to $50,000 to startups that have only been in business six months, and targets businesses owned by minorities, women, and veterans. Opportunity Fund focuses on low-income entrepreneurs, while Kiva Zip  offers interest-free loans up to $10,000 using a crowdfunding model.

Need cash in a flash? Kabbage evaluates the health of your business by looking at your Paypal, Etsy, eBay, or other business accounts, and can provide lines of credit up to $100,000 in a matter of days. However, speed comes at a cost; you’ll likely pay a higher -than-average interest rate, adds Monosoff.



Private investors

A second option is to bring in outside money to help your business grow. Sites like Angel List and the Angel Capital Association can point you towards prospective early investors. The advantage is that investors can also bring experience and expertise that a fledgling business may lack, says Jared Hecht, CEO of Fundera, a marketplace for small business loans. The downside is that investors will now own part of your company, which means relinquishing some control.

“Outside investors will have a say in the future of your business, whether you like it or not,” he says. “You have to keep them abreast of what is happening with your company. With debt, your only responsibility is to pay back the loan.

Depending on where you live, you may find community resources that offer growth capital on more favorable terms. Oakland’s ICA Fund Good Jobs initiative has provided from $300,000 to $800,000 to startups that offered good jobs to Bay Area citizens, as well as expertise, business services, and help securing further funding. And that money often makes it easier for these businesses to secure other financing, notes CEO Sean Murphy.

“Handing an entrepreneur a $500,000 check can be a big game changer,” notes CEO Sean Murphy, but says business owners tell him the mentoring ICA provides is worth almost as much.


An increasingly popular option is crowdfunding. When Back to the Roots, a maker of ready-to-grow and ready-to-eat organic foods, needed to fund a new Home Aquaponics Kit, it turned to Kickstarter. In a month the company raised nearly $250,000 to create the product, which uses the waste produced by pet fish to fertilize herbs growing in pots above it.

The campaign generated another quarter million in advance sales on the company’s Web site, says co-founder Alejandro Velez. It also got the attention of retailers such as Petco, Whole Foods, and Nordstrom, which now carry Back to the Roots’ products.

Velez’s keys to crowdfunding success: Create a product that fills a real need, and don’t try to raise money until it’s ready for prime time.

Friends and family

The final, Hail Mary option: Hit up friends and family. Just be very careful to set realistic expectations ahead of time, says Monosoff, and brace yourself in case things go south.

“You want to have everything spelled out clearly in writing or it could get dicey,” she adds.“You don’t want to be hiding behind the barbecue when your family members walk in the door.”

If you’re going that route, Monosoff recommends ZimpleMoney, a site that helps you manage intra-family loans.

An honest day’s work

For Honestly Goods, the choices are more limited. Kral and Swinnerton are loathe to take on more debt and unwilling to give up control, so private equity is not an option. And while they’re considering crowdfunding, for the moment they’ve decided to continue to bootstrap by liquidating their small stock portfolio and draining an old retirement account. That, they hope, will keep them going until the national show in July.

“For me, it’s all about how Atlanta breaks,” Kral says. “That’s when I’m going to know if we’re going to become a real brand.”

Smart Money Tips

  • If you’re just starting out, build up your credit by applying for business credit cards.
  • Create a detailed business plan. Even if a lender or investor doesn’t require it, it’s a good idea to have one anyway.
  • Subscribe to Dun & Bradstreet so others can guage how timely you pay your bills.
  • Implement electronic invoicing and payments solutions to speed up cash flow.
  • Have a clear idea why you want the money.
  • Don’t borrow more than you can pay back and still turn a profit.