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How to Raise Money for a New Business These Days

Advice on tapping savings, crowdfunding, grants and bank financing

By Donna Mitchell

Before Dawn Kelly, 58, launched her quick-serve restaurant The Nourish Spot in Queens, N.Y. in 2017, she had been downsized from a corporate public relations job. She needed to figure out a way to continue working but was unsure about almost every aspect of setting up and running a business.

Dawn Kelly, new business, how to raise money
Entrepreneur Dawn Kelly  |  Credit: Courtesy of Shante Carlan

One of Kelly's plans was solid, however. She decided to rely on her personal savings and proceeds from a severance package to fund the business.

Older entrepreneurs often have good credit, which is helpful when applying for a business credit card or bank financing.

"I never even considered going to a bank and asking for a loan," said Kelly, who co-owns the company with her children. "I already knew that African Americans by far had the most difficulty in securing business bank loans."

If you're like Kelly and planning to start a business in midlife, the idea of funding it through bank loans, investors or donations or loans from family and friends might be a distant second to using your savings.

When launching their companies, almost half of startup principals had $10,000 in the bank to fund it, according to a 2019 study by SCORE, "The Megaphone of Main Street." A quarter of respondents had put away $50,000.  And in the Fall 2020 "Megaphone of Main Street" report, 75% of small business owners surveyed said they tapped personal funds to keep their businesses open during the pandemic.

At some point, however, many entrepreneurs do seek outside financing. Just know that well-prepared prospective and current small business owners who are 50+ have two significant advantages over other age groups.

2 Advantages of Older Entrepreneurs

"The first is very targeted social capital," said Gerri Detweiler, education director at Nav, which helps business owners manage credit and streamline access to financing. "Many do have a wide network of professional connections, and many fifty-plus entrepreneurs go in the direction of what they did in their previous full-time careers." 

Also, older entrepreneurs often have good credit, which is helpful when applying for a business credit card or for bank or credit union financing, Detweiler said.

Crowdfunding for Your Business

Crowdfunding has become a powerful option for entrepreneurs looking for financing, and platforms have added creative innovations to assist business owners.

This year, the Go Fund Me crowdfunding platform's advocacy and charitable arm, launched the Small Business Relief Initiative to help small businesses affected by the COVID-19 pandemic. It offers $500 in matching grants to companies that raise at least $500 on the crowdsourcing platform.

Another platform, NextSeed, has added securities investing to the crowdfunding model through what's called regulated crowdfunding. Supporters who make contributions are actually investors and have a range of options for placing money.


"This model allows small private businesses that NextSeed has vetted to issue securities to both our network of investors as well as the community at large, much like a public company would," said Abe Chu, co-founder of NextSeed. 

NextSeed screens each campaign before listing it, requiring a business plan and financial statement. For companies operating out of a brick-and-mortar location, NextSeed might also require a letter of intent for a lease, Chu said. People over 50 own around 20% of companies listed with NextSeed, roughly, Chu estimates.

Abe Chu of NextSeed, new business, raise money
Abe Chu of NextSeed

"Regulation crowdfunding gives investors the ability to do their own diligence as well," said Chu. "The business plan, team experience and financials are all presented on the campaign and in the disclosure statement, and investors can post questions and comments for the entrepreneurs."

Historically, only 3% of businesses that apply to NextSeed are approved and eventually launch on the platform. 

Don't overlook reliable small-business financing standbys like credit cards. You can apply for a business credit card from a bank or credit union.

Business Credit Cards and Bank Financing

Detweiler suggests getting a credit card exclusively for business use and to build business credit.

Sometimes, determining which business expenses justify a credit card can be tricky, Detweiler said. That's why she strongly recommends turning to mentors for advice. They are excellent sounding boards who can help you avoid costly mistakes, Detweiler added. 

But a word of caution: "Small business credit card issuers reserve the right to raise rates if you are just a day late with payments," Detweiler said. "You do want to be very careful." Interest rates on business credit cards typically range from about 13% to 19% these days.

"It is comforting to a banker, knowing that the potential borrower is mature — at least in age."

If you decide to apply for bank financing, it helps to have been in business for at least three to five years.

Shore up your prospective lender's confidence in your company and your loan application by including a copy of your business plan, says G. Winston Smith, president and chief operating officer of the Business Consortium Fund, a New York City-based lender. 

"It is comforting to a banker, knowing that the potential borrower is mature — at least in age," Smith said. "Hopefully they are also mature in wisdom, and that wisdom comes through in the discussion."

Smith also recommends updating your business plan regularly, with projections for potential funding needs, and then leaving a copy with your business banker.

Going for Small Business Grants

Another source of money: small business grants. Nav, for example, offers a $10,000 grant every quarter.

Kelly, of The Nourish Spot, applied for almost every type of grant she heard of, with great success. She won at least $30,000 this way from financial institutions, including the credit card Discover; a $2,500 COVID-19 related grant to help pay for personal protective equipment and to sanitize restaurant equipment plus a $27,000 grant from New York City to support employee salaries, provided she raised their hourly pay to $20.

Detweiler cautions, however, that trying to secure free money to start a business is not always realistic. Grants are often competitive, require extensive applications and time-consuming to get. But if you're determined, Detweiler recommends asking your local Small Business Resource Center, business incubators or accelerators or a mentoring group like SCORE.

"What every entrepreneur eventually discovers is you just don't know what you don't know," Detweiler said. "Finding others who can help identify the things you need before you launch is really important."

(This article is part of America's Entrepreneurs, a Next Avenue initiative made possible by the Richard M. Schulze Family Foundation and EIX, the Entrepreneur and Innovation Exchange.)

Donna Mitchell
Donna Mitchell is a freelance writer, editor and blogger based in Newark, N.J. Her work has appeared in Institutional Investor, Financial Planning, American Banker and elsewhere. Read More
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