Launching and growing your business isn’t cheap, and there are a lot of costs to getting your venture’s finances to a profitable state. Approximately 80% of startups rely on bootstrapping, which is to say, the founders self-fund their business and use profits to fund expansions to the business. There are some advantages to bootstrapping over other funding options, but it’s not effective with every business model, or even in all industries. Bootstrapped businesses also scale much slower than what’s possible with large injections of capital. Bootstrap as much as you can, for as long as you can. When you can’t, or when you see an opportunity for strategic expansion that you’re prepared to take advantage of, it might be time to seek an injection of capital. If you’re an Ivy League MBA grad working on your fourth startup, accessing capital isn’t a problem. You have a shortlist of investors you’ve built relationships with (or might even be related to), and you know how to pitch them, making that capital easier to access. Unfortunately, if you’re a veteran or military spouse without an MBA launching your first business, it’s a lot harder.

Barriers to Capital Access

There are several factors that make accessing capital uniquely challenging for veterans and military spouses.

Unconscious Biases

Decisions about who gets capital ultimately come from people, and people are flawed and biased, especially in lieu of knowing someone as an individual. If the only information they have is that you are a Black woman, then they might fill in a lot of the blanks subconsciously with racial and gender biases or stereotypes. Studies show that women and people of color win significantly less capital than white men. These barriers can compound with those conferred by veteran, disability, or military spouse statuses, and shrink the odds of accessing capital even more. For more on overcoming racial and gender-based barriers as a business founder, fill out an interest form or apply for Bunker Labs’ Breaking Barriers in Entrepreneurship.

Access Business Networks

About 10% of venture capital firm deals closed came from cold approaches from ventures. Which is to say, 90% are warm leads from venture capitalists’ networks. Some of these networks are professional, investors talking to investors, others go back as far as college or even grade school. Veterans and military spouses are rarely a part of these social circles or professional networks, especially as first-time entrepreneurs. Accessing these networks from the outside can be challenging, even if you’re organized and your metrics look like a slam dunk.

Low Cash Flow and Collateral

If you’re seeking a loan or investment, lenders and investors want to know what your current cash flow situation is to determine how good a bet your business is. Lenders also want to know what sort of collateral you might put up in case you default on the loan. While this system works great for mortgage loans and investing in established businesses, it’s not so great for startups with low cash flow and few collateral assets. As a new business, you probably don’t have much in the way of product inventory, machines, buildings, or land. There are some entrepreneurs who look to solve this collateral gap by putting up their own home equity as collateral, especially since veterans own homes at a higher rate than the general population. Please, don’t do this. It goes wrong a lot more often than it goes right, and it’s often unnecessary in the first place. There are means of securing capital other than risking your home.

Poor Credit Score

If you or your spouse recently served, odds are your credit score is bad. While the causes vary, recent veterans tend to accumulate auto loan and credit card debt at a prodigious rate compared to the rest of the population, and it causes long-term damage to their credit scores. Even if you’re debt free now, your hard work might not be reflected in your credit score, and might be costing you capital opportunities. Get your score to 720 or higher to ensure your credit score isn’t holding you back (it’s rare for business loans to even be considered if you’re at 620 or lower)! You can also investigate your business credit score, or set one up.

Loan Size is To Small

Banks want to make loans, it’s part of their business model. But just like any product or service a business sells, there is a cost the bank incurs for every loan it considers making. Because of this, banks want to make big loans to get the most efficient revenue to effort ratio. They rarely want to make business loans under six figures. What’s worse, when institutions specialize in smaller loans, the capital tends to be more expensive to make it worthwhile for the bank to bother lending a smaller amount. You’d think the smaller amount poses less risk to the bank, but they generally consider it to be at a higher risk of default. The thinking is, if you need a loan for $25,000 dollars, you should probably be charging it on your credit cards or some other line of credit. If your credit cards are already maxed out or unable to take on that much debt, then you shouldn’t be borrowing from the bank, either.

Poor Presentation Skills

Culturally, a lot of veteran and military spouse first-time entrepreneurs are outsiders to the rest of the capital access world. You might not have an MBA, you might not have learned from experts how to pitch your business to bank loan officers, venture capitalists, or angel investors. Not knowing the industry standards for presenting your business to the lender or investor that makes the decision is a huge disadvantage for veteran and military spouse entrepreneurs seeking capital. A bad pitch, poorly written business model, or even your personal appearance can change a yes into a no. There are many pitfalls to avoid. While presentation can be a barrier to capital access, it’s also a huge part of the solution to veteran and military spouse capital access woes. A sincere, well-researched, polished pitch can sell investors and lenders on you and your business, even if your other metrics aren’t quite right. Preparation can go a long way toward selling yourself and your company as ready to take the next step that investment or loan represents. 95% of VC firms cited the founder as an individual as a very important factor to their decision on investing, more so than any other factor.

Ways to Access Capital

There are a lot of different ways to access capital. The best sources to tap first are personal savings, a friends and family round of investments and loans, and credit cards. Sticking exclusively to these sources of capital is commonly known as “bootstrapping”, and is how the vast majority of new businesses get their funding. The idea is that as your business grows and increases revenue, you invest your profits back into the business to grow. Growing this way tends to be a slower process, but it exposes weaknesses in your business plan and tests your market assumptions with less exposure and risk. So, bootstrap as long as you can for a strong, tested foundation for your business. Further, capital access is not about digging yourself out of a hole. If you’re in a bad spot, or otherwise not in a profitable state, you need to fix any underlying problems and then sell your way out of it. It might seem like a huge cash injection might create a buffer you desperately need, or solve your immediate, perhaps dire problems, but it won’t look that way to lenders or investors. Capital is to fund growth and expansion. It’s to bring your product to new markets, fund purchases to increase production or bring down the cost per unit on production. It’s to staff up to service more customers, or acquire a new facility to handle day-to-day operations more efficiently. That said, some business plans are a race between competitors to get to market first. You can’t take the time to bootstrap when a rival solution is going to make it to market ahead of you and own the market share unchallenged. Capital injections can shrink timetables when it comes to manufacturing, talent acquisition, infrastructure, and asset acquisition. In some cases, deep pockets are necessary to fund research and development ahead of making a single sale.

Credit Cards

The best source of capital for most entrepreneurs is a business credit card. Credit cards can help smooth out a business’ finances month to month, help with emergencies, and even finance some larger growth-minded purchases within the card’s credit limit. They’re also a great way to keep business finances better separated from personal expenses, which can make tax season a little less complicated. Credit cards can also help you establish or repair your credit score, if necessary, which can improve your access to other forms of capital. Credit cards aren’t the solution for every funding challenge, though, and not all credit cards are made equal. It’s important to understand your card’s interest rate, annual fees, and rewards programs to get the most out of it for your business. Selecting a bad card can create far more problems than it solves. There are also some key differences from personal credit cards you need to be aware of. Shop carefully when selecting a card to make sure you’re finding one that fits your business’ spending habits.

Win a Grant or Competition

If you have the time, participating in some of the many business competitions can be a fun, educational way to bring in some early startup capital. And the good news is, there are a lot of them, and there’s probably one aimed squarely at entrepreneurs just like you! You can check out our pitch competition and conference calendar to get a sense of some of the events aimed at veteran and military spouse entrepreneurs. There are also tons of small business grants available. The best part is, you aren’t selling equity or paying grant money back. It’s like free money! However, there are a few things to remember. First, most business grant money is taxable. Make sure you plan ahead so you aren’t surprised by the tax bill. Second, be strategic about which grants and pitch competitions you join. If you can find grants aimed precisely at your industry and/or entrepreneurs with your background, that’s a huge advantage. Finally, winning grants and pitch competitions is great, but they do require an investment in manpower. Putting together a winning grant proposal or pitch competition means putting real time and effort into it, with no guarantee of any financial reward.

Take a Loan

Taking out a business loan is another way to access capital for your business. Unfortunately, unless your credit is good, your presentation is polished, and your business plan is sound, applying for loans can be frustrating. You also do not want to apply for business loans until you’ve formed a legal entity for your business, so your personal finances and assets are protected in the event of a default. While there are exceptions, if you’re taking a loan, it should be for six figures or more, and it should be to fund a major step up in growth for your business that expands into new markets or creates cost savings in excess of the loan repayment. Anything smaller, you might instead look to a combination of crowdfunding and credit cards. Be aware of interest rates and late fees, and be wary of predatory lenders, who are especially prevalent if you’re borrowing under $250,000. Stick to your bank, or look at SBA loans, which are a great place to start.

Borrowers Beware

The big downside to loans is that they must get repaid with interest. If you’re not careful and intentional, this can keep your business finances in the red even as your revenue increases. Before you even ask for a loan, you should know to the dollar how much you need, what it’s being spent on to make your business grow, a range of projections for that growth, and search loan terms that mean you can repay the loan even if projected growth doesn’t quite materialize, or do so on the anticipated timetable. Loans come with a risk of default, which can mean bankruptcy or losing the business. As entrepreneurs (especially first-time entrepreneurs), we all are comfortable with risk, and we all feel like we can bet the farm and win. You don’t want to make risky bets with your business when it comes to loans. Be conservative about what you borrow and make sure there’s no “if” statements in your plan for paying the loan back. “If” means there’s also an “if not”, and there needs to be a plan for “if not” that isn’t “go bankrupt”.

Looking for A Safe Small Loan?

While traditional loans favor large amounts, the micro-loan is becoming more and more prevalent as the demand for small loans increase. The Small Business Administration (SBA) has a microloan program aimed at financing under $50,000—the average loan amount is just $13,000. Find an SBA-approved lender in your area and begin investigating terms and eligibility.

Sell Equity

If you need a large amount of capital, but don’t have the revenue stream to pay back a loan, your other choice is usually to sell equity to an investor. This means you are selling ownership in your business, and the investor is betting they’ll make more money when they sell that equity later. The great thing about selling equity is that you are not on the hook to repay that money, the investor is taking the risk. The bad news is, you just gained a business partner, and might not have complete control of your business anymore. If the investor is a great partner and a great fit, then that’s fine, but a bad partnership can harm the business and be difficult to untangle yourself from. With investors, it’s important to maintain control of your company, and pick an investor that adds value beyond the capital. These are business partners, so you want one that has unique skills, networks, or tools that can help your business grow. Investors might have contacts that can get your product in big box stores, gain critical exposure, or help work out technical or manufacturing problems holding you back. You’re taking on a partner, put some effort into making sure it’s a partner who can uniquely help you succeed. There are generally three different types of investors you’ll come across: personal investors, angel investors, and venture capitalists.

• Personal Investors: These are people already in your network with money to invest. This includes friends, family, and business contacts. They’re willing to invest because they know you personally and believe in you and what you’re doing. These investments tend to be small, usually under $20,000 dollars. You might reach out to personal investors at any stage of business, but it’s most common in the ideation phase.
• Angel Investors: These are high-net-worth individuals that are interested in helping young companies launch and find profitability. They often invest in the $10,000-$100,000 range, though it depends on the individual and the company. Angel investors are willing to invest in companies that aren’t yet profitable, so long as there is a clear path to profitability that you can get them to believe in, even if it’s not quite working yet.
• Venture Capitalist: VC money might come from an individual, but just as often, it’s a firm that represents several investors. VC firms typically come in at the growth or scale phase, when your business model is already proven and working. Their goal is to take your company to the next level of growth. VC firms might invest millions of dollars for a significant piece of equity.

Try Crowdfunding

One of the latest innovations in raising capital, crowdfunding calls on large numbers of small donors to raise funds via one of many online platforms. The trick to crowdfunding is the same for most capital access—have a plan for every dollar before you ask for one. Running a crowdfunding campaign is a huge lift for your team, so make certain that if you hit your funding target, you’ll be able to uphold your end of the crowdfunding deal and be able to take a real step forward with your business. Crowdfunding shouldn’t’ be a treadmill that just keeps your business alive and in the same place, it should be creating growth. There are four basic types of crowdfunding:

• Rewards Crowdfunding: This is the most popular type of crowdfunding. It acts as a sort of pre-order campaign, great for new product launches. If the target is met, you fill the orders. This is especially useful for helping smaller companies take advantage of economy of scale to place larger minimum orders with manufacturers. With rewards crowdfunding, it’s important to have a strong marketing team to get the word out to your potential customers, and to have a strong video and funding page. Kickstarter is a particularly popular rewards crowdfunding site.
• Equity Crowdfunding: This type of crowdfunding sells off a certain percentage of equity among several investors. Investors get a dividend of your business’ profits as a result of their investment. Startengine, Fundable, seedinvest, and AngelList are among the top equity crowdfunding platforms. Crowdfunded stakeholders rarely wield much influence in day-to-day business operations, which can make it appealing if your aversion to investors is that you’ll lose control over your business. However, investors are looking for businesses that have or are on the verge of having profitable revenue streams.
• Donation Crowdfunding: Common for nonprofits, donation crowdfunding is when people donate to a cause with no expectation of a reward or financial incentive. For-profit businesses can sometimes take advantage of donation crowdfunding if a sizable portion of the campaign’s money is going to a charitable cause. GoFundMe is perhaps the best-known donation crowdfunding platform.
• Debt Crowdfunding: This is a loan that uses the crowdfunding model, so instead of borrowing money from a single source, you borrow a little bit of money from a lot of people, or give a lot of people an opportunity to make your loan. These platforms offer interest rates and all the typical terms of a loan, and come with all the same warnings. The most popular debt crowdfunding sites today use a form of peer-to-peer lending, like Lending Club or Funding Circle.

Other Options

There are very smart, creative people coming up with new funding strategies all the time. In-kind partnerships have exploded in popularity over recent years as a way to reduce overhead and extract benefits from well-placed partners. Purchase order financing loans are also a popular way of taking on short-term loans to move business forward.

Keep Bootstrapping

All that said, you probably don’t need additional capital. More often than not, the right choice is to keep grinding and bootstrapping. Apply for some grants or pitch competitions. And get yourself a business credit card. Beyond that, keep your equity whole and your revenue growing, and keep testing and validating your business model. Bootstrapping means that if you make a misstep, it’s generally going to be small and correctable. A misstep in managing a giant pile of outside capital can have more serious ramifications, so when you reach for it, make sure you’ve done your homework and are ready for the responsibility.