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Who says that college students can’t take over the business world? At LendEDU, we believe in the power of college startups because we are one. Matt Lenhard and I started our company when we were still in college at the University of Delaware.
Only, it wasn’t called LendEDU at the time. The company was originally conceived as Shop Tutors, a software platform to allow education institutions to manage their student tutor programs and relationships. We participated in a startup competition and won, receiving $5,100 in funding.
We were later accepted into the Iowa Startup Accelerator’s 2014 cohort where we realized that our business idea wasn’t going to scale or be as profitable as we wanted it to be. We decided to pivot and launched LendEDU, a student loan marketplace. That concept was much more successful, and we have branched out to also being a marketplace for other types of credit products. Today, our company has grown to 13 full-time employees!
But it wasn’t easy to get here. As you’ll probably guess, one of our biggest struggles was finding funding. Money was necessary to build and grow our business, but it wasn’t always easy to find people willing to invest in a company that was being run by two first time entrepreneurs.
In addition to the help we received from the Iowa Startup Accelerator, we also got money from Y Combinator, angel investors, and venture capital firms, but this was challenging and we had to work hard to be taken seriously. We decided to be very careful with how we used the money we did get by focusing on early revenue generation and paying careful attention to our burn rate. As of today, we have raised considerably less than similarly sized tech businesses and we’ve learned a lot along our journey that we want to pass on.
If you’re wondering how to raise cash to help turn your startup idea into a business success story, you’ve come to the right place. We’ll walk you through all the different options when it comes to how you can fund your business and talk about what additional barriers you might face as a college startup.
On this page:
- Preparing for Business Funding
- Business Grants
- Startup Investors
- Free Funding Sources
- Business Loans
- Friends and Family
- Credit Cards
Getting Your Business Ready for Funding
Worried that the business world won’t take college students seriously? Don’t give them the opportunity to question your commitment or your business acumen; make sure that you come across as the professionals you are.
That means ensuring that you have a business plan, an investor plan, a corporate structure, and a financial structure. These are the minimum things you’ll need to ensure that you’ll be taken seriously when you go asking others to invest in your company.
Find Business Loans & Other Funding Options
- Time in business: 3+ months
- $2.5K in monthly revenue
- Minimum credit score: 450
What’s a Business Plan?
A business plan is basically a document that shows people you’ve put thought and hard work into developing and testing your business idea. It is usually at least a 15-to 20-page document and it shows in detail what kind of product or service you hope to provide, what your business goals are, and how you’re going to achieve those goals from financial, marketing, and operational perspectives.
It also usually includes market research to prove that there is actually a market for your product or service. A business plan is often necessary in order to get money from lenders like banks or from investors like angel investors or venture capital firms.
The first component of a business plan is often an executive summary that gives a high-level summary of what your business will do. Then it gets into the details of your financial plans. How much will it cost to set up your business? How much revenue do you think you will make?
It’s critical that you fully back these figures up by providing breakdowns of where you think the money will come from for your expenses (like investment, loans, and revenue) and breakdowns of your sales or what percentage of market share you predict you’ll be able to capture. This section is critical to convincing funders to give you money as you should be able to back up these figures with experience and facts.
The next part of your business plan will answer the question of how you will achieve your objectives. This will include your timelines to launch, your marketing plan, where you will source your products, and what your staffing will look like. This section could have different options depending on how much revenue or funding you receive to show that you can adapt to different levels of investment and growth. It will also frankly spell out the risks and drawbacks of your business so that you can show you’ve clearly considered what could go wrong and that you’ve planned for how to handle those situations.
You’ll also want to include information about the people involved in the project including bios of all the partners, board members, and business mentors. This will give your company credibility and allow you to show that you will be able to accomplish your goals with the help and mentorship of those on your team.
Still not sure what a business plan looks like? Here is a resource to help.
What’s an Investment Proposal?
An investment proposal is something that you will need to have in addition to a business plan if you want to get investors to invest in your business. This includes your business plan but also includes things like an investor presentation, an investment analysis, an investment proposition, and financial projections showing how investments can grow based on future valuations of your company.
It’s important that you tweak your investor plan based on each particular audience. You’ll want to make sure that you have all the information that a particular funder has asked for in your investor plan and presentation, but you’ll also want to look closely at what any particular investor looks for in making their investment decisions. You can usually find this information on their website and it will help you customize the presentation to their particular needs. If they’re interested in businesses that have significant growth potential, your presentation will want to emphasize your growth potential over everything else.
An investment proposal is usually required by venture capital firms and other institutional investors, but it’s also helpful to have even if you want to ask friends and family for an investment. Since you’re a college student, people might not take your startup seriously, so the more that you do to look and act professionally, the more faith potential investors will have that you can deliver.
The investment plan should also clearly lay out how much equity you’re willing to give up for a particular investment amount. This will often serve as a jumping off point for negotiations with an investor.
Still not sure what an investment proposal looks like? Check this resource out.
Have a Corporate Structure
A real business is an incorporated or registered business – anything less is just a hobby. If you want to be taken seriously, you need to make your company official. While there are a lot of different business structures, you’re likely better off setting up a corporation or limited liability company. These corporate structures limit your liability, which means that if someone ever sues your company you won’t be held personally liable. They also allow for a variety of different ownership structures.
When it comes to limited liability structures, you generally have two options: a corporation or a limited liability company. A limited liability corporation gives you more flexibility when it comes to filing taxes as you can choose whether to file as a corporation, or as a sole proprietor, or a partnership. Before you decide what type of company you want your business to be, make sure to do some research on the pros and cons of each.
Set Up Your Finances
If you’re going to start a business and ask people to give you money, you don’t want to be asking them to make out a check in your name when they decide to invest. They’ll think twice since that’s unprofessional. That’s why you need to set up your company’s finances immediately. The first thing to do is get a bank account for your business. This will make you look professional to your clients, who won’t want to be paying you personally, and your investors, who want to know that your company is its own legal entity.
It’s pretty easy to get a business bank account. You can set one up at either a bank, online bank, or a credit union. To do so, you’ll need to have set up your business first and you will need to bring a copy of your business incorporation papers to legally open the account. You’ll also need your personal information and identification. Setting up an account shouldn’t take more than 30 minutes if you go into a bank branch to do it.
Once you have your finances set up, you’ll also want to do things like getting accounting software to track your expenses and payments. It’s important that you track everything you’re spending so that you can quickly show your books to any potential investors. You should also know your numbers before going into any business meeting.
Finally, applying for a business credit card is important because it will allow you to start building your business credit score. A business credit score is critical when it comes to borrowing money down the road. And the longer you have been using credit as a business, the better your score can be – so long as you’re using credit responsibly.
Can College Students Win Business Grants?
It’s fair to assume that practically everyone loves free money. That’s why you’re likely interested in the potential and chances of getting small business grants in order to fund your startup. After all, you don’t want to give up too much of your business’ equity. And borrowing money isn’t necessarily ideal, taking monthly payments that might compromise your growth since you won’t be able to reinvest that income.
Grants seem like the perfect solution, but it can be difficult to get them for most startups. You also need to look out for scams. Never apply for a grant that requires any upfront payments by you.
Grant applications can also be very time-consuming and your chances of actually winning one can be slight. However, despite this, there are still many people who win grant money in order to help them launch or grow their business – and why not at least try to get some of that free money?
Where to Find Grants
There are a number of different sources for small business grants – from grants given out by local, state, and federal governments to companies. But how are you supposed to find them?
When it comes to finding grants, one great source is our small business grants search tool. You can also try to do some online searching using keywords that are relevant to your company, like ‘small business grants for tech startups,’ or ‘small business grants for college students.’
You should also contact your school’s entrepreneurship office or entrepreneurship club as they might know of grants that are available to students or to local businesses that you should apply for. Any local organizations that help young entrepreneurs would also be great sources for grants.
Another place to contact is the local or state small business development center. Many states have these centers, offices or departments that are set up to help small businesses. They often have lists of these types of grants on their websites or can point you toward resources that will help you find local grants.
Grants for Young Entrepreneurs
This is technically a grant for those who skip or take time off from college, but it’s an important grant to mention. Peter Thiel is the co-founder of PayPal and is an investor in Facebook, LinkedIn, and Spotify. His fellowship aims to help young entrepreneurs live their dreams. He awards $100,000 to youth under the age of 22 to encourage them not to go to college but to start working on innovative solutions to the world’s problems.
Each year, 20 to 30 fellowships are given out. You can use the money for whatever you want for your project. The program is not an accelerator or incubator, but it does connect you with mentors and help you access more funding to move your business idea from concept to action.
While there aren’t a lot of prominent national small business granting programs aimed at college students, there are a lot of local programs aimed at helping teens and young people start businesses and learn about entrepreneurship.
To find out more about whether there are grants available to you specifically for young entrepreneurs or college entrepreneurs contact your local or state business development center or department.
These grants will likely be smaller amounts of money, but they might be what you need in order to launch your business. They also tend to not be as competitive as other business grants, so you might be more likely to win them.
Business School or University Small Business Grants
If you’re a college student, you’re in luck. Many colleges are trying to encourage youth entrepreneurship, and there could be pots of money available to you. Check with your school’s financial aid office to see if they have grants or support for student entrepreneurs as well as with any entrepreneurship clubs or offices your school might have.
If you are a business or commerce student, you might also want to check to see what support your faculty might have for students wanting to launch an entrepreneurial venture.
Grants Open to Everyone
There are also small business grants that you can apply to that are open to everyone. These grants can be more competitive for you since you’ll be competing against people who have more business experience than you do. But they might be a great source of cash for your business. While there are pools of state, federal, or local funding that you might be able to access, here are some examples of some grants available to anyone.
Lending Tree Small Business Grant
Lending Tree is an online marketplace for loans and offers a $50,000 business grant for passionate entrepreneurs. They specifically focus on entrepreneurs who have a growth mindset and are focused also on community enrichment.
Because their competition was just launched in 2017, there might be fewer people applying since they don’t know about it. So you might have a better chance of winning than with other more established business grants.
Visa Everywhere Initiative
Visa wants to support innovations in payment technologies and so has a granting competition that looks to fund game-changing ideas in the field. Their Visa Everywhere Initiative is open to people around the world and provides $50,000 to the winners.
They focus on specific topics or areas of interest like how to deal with expanding payment access to small or medium business to how to include messaging and artificial intelligence in payment processing. As this is a global grant competition, you will likely have significant competition. But the focus is so niche that you might still have a great chance to win or get exposure for your idea.
FedEx Small Business Grant
FedEx wants to support small businesses and offers a $25,000 grant to one business and smaller grants to nine other businesses every year. The program is very well known and therefore the competition is likely quite fierce. They require that you fill out an application and also create a video. They seem to favor providing support to businesses that have been operating for a while and need help with their growth. But you can always research past winners in order to see if your company would be a good fit.
If you create a compelling video, you might just win big.
Boost Your Chances of Getting a Grant
Wondering how you can improve your chances of winning a small business grant? The most important thing you can do is to spend your time applying for grants that you’re more likely to win. Read through the application thoroughly to make sure you fully qualify for the grant.
You should also check to see if there is any information about past winners. If you haven’t even launched your business yet and all the past winners are people who have been running their businesses for at least a year or two, then that grant might not be the best fit. By focusing your time on the grants where you do have a chance, you increase your chance of winning money.
The most important thing that you can do when applying is check to see what kinds of businesses the grantor is looking to reward. If their website says that they want to reward businesses that have the potential to change the world or that are sustainable, make sure that you write your application in a way that emphasizes the world-changing potential of your business idea or how sustainably you are running your business. You want it to be obvious to them after they read your application that you’re a perfect fit for their criteria.
Another thing that can help boost your chances of winning a grant is to look at grant applications that have been successful. Sometimes you can find these online or even by e-mailing past winners and asking if they would mind sharing their application. If you can’t get a copy, make sure to share your application with a business mentor before you submit it to ensure it comes across as professional and that it is a strong application.
How College Students Can Find Startup Investors
You think you have a great scalable idea that an investor is going to love. Now what? If you’re wondering what kind of investor to approach, what is the right time to approach them, how to do it, and the benefits and drawbacks of different kinds of investors, then you’re in luck – we can help you with that.
Angel investors are individual business people who have had success and now want to help other companies fund and grow their businesses. Sometimes they get together and form a network, but they make investment decisions separately even if more than one angel investor decides to make an investment.
An angel investor has more flexibility than a firm over when they invest, and many like to invest early, although every angel investor is different. That means that you might be able to go to them for seed funds or for funds later on in your business cycle. Some investors are very clear at what stage of the investment cycle they give money to businesses, while it depends on the business idea for others.
They might be more likely to give money to invest in the businesses of college students since they might see themselves in you versus other companies where, because they are investing other people’s money, they might hesitate to invest in college students.
The benefit of working with an angel investor is that they have a lot of flexibility in their decision making. If they like your business, they can give you the money you need if they have the capacity. Angel investors are also likely to advocate on your behalf to other investors, but might want to be more hands-on with your business than another type of investor. For that reason, before you decide whether or not to work with an angel investor make sure that it’s a good fit personality-wise.
Accelerator funds are firms that pool money from different investors in order to help startup companies get seed money or money to help them grow. Accelerator funds often focus on early-stage companies or companies that are growing.
These funds are a perfect investment for companies that offer the potential for significant growth. Accelerators’ funds will be more regimented as to which companies they make investments in, so it’s important to know your company and your sales projections inside and out before your pitch meeting.
It’s important that you come across as a professional as they might be wary of investing in a company that is being run by college students since they are risking other people’s money. You might be able to improve your chances by showing that you have partners, board members, or business mentors affiliated with your company who can vouch for you.
Accelerator funds will have guidelines for things like reporting and can sometimes provide you with mentorship and other types of advice. But they tend to be more hands-off than angel investors, so you won’t have to contend with individual personalities as much. They also have greater capacity and might be able to give you a larger investment or to provide you with other investments as your company grows.
Like all professional investors, they will want some degree of say in how your company grows and governs itself.
Venture Capital Funds
Venture capital funds are firms that pool money from other investors but, unlike accelerator funds, can invest at all stages of the business cycle instead of just focusing on the seed and growth stages.
Venture capital firms can be difficult to access and might not be willing to fund a business like yours unless they also focus on seed funding. You might also have a harder time getting funding from them since they are investing the money of other people and therefore will have thorough investment criteria. Like with accelerator funds, you can potentially increase your likelihood of getting an investment by ensuring that your presentation and information is professional and bringing on business mentors, partners, or board members with significant industry experience.
A benefit of working with a venture capital firm is that they have significant amounts of money and so they can potentially give you a large investment. They also might be willing to invest further in your company as it grows and develops other capital needs. The downside of a venture capital firm is that it can be very hard to get access to or to be taken seriously by one as a college student.
Many venture capital firms also prefer to make large investments in bigger companies, so it might be more difficult to find a company that is the right fit for your startup.
Free Business Funding Sources for College Students
Business competitions are great ways for college students to not just potentially win money to use for their businesses, but also to get the attention of important investors and industry players. It also forces you to refine your business plan and allows you to learn from other teams. Winning business competitions also looks great on your resume or your company’s webpage.
There are a number of business competitions of various sizes. The biggest is the Rice Business Plan Competition, which gives out prizes amounting to $1.4 million. But there is also the MIT Clean Energy Prize competition with a prize of $200,000 and the NYU Stern New Venture and Social Venture Competitions with prizes of $200,000.
You’ll also likely be able to find smaller business competitions that are in your state or community and have prizes from anywhere from $5,000 to $20,000. These can be easier to win since there are fewer people involved, but the hard work required to participate is still the same.
The downside of business competitions is that they take up a lot of time and can cost a significant amount in travel and other expenses. And there is no guarantee that you will end up with money at the end. For this reason, it might not be the most direct way to get cash for your business.
Scholarships are another way that you might be able to help fund your business. While scholarships are usually intended to go toward your academic costs and expenses while you’re in school, if you get enough to cover those things, then the extra can be used to help support your business. This is particularly true if you apply for and win external scholarships from organizations, companies, and nonprofits that are dedicated to helping students like you. Some even are focused on helping students who are looking to go into business and entrepreneurship such as The Western Union Foundation Family Scholarship worth $5,000, and the Tortoise Young Entrepreneurs Scholarship for Kansas or Missouri residents worth $3,000.
The downside with using scholarships to fund your startup is that some colleges will reduce your financial aid award if you win external scholarships. Which means that even though you get an extra award, it will have to go straight to your tuition and other expenses rather than being able to be used for your business.
Scholarships can also be time-consuming to apply for and difficult to win since there are many other people applying for them. If you think you have a good chance of winning a particular scholarship then it makes sense to apply. But if your fit for the scholarship isn’t ideal or if a significant number of other students will also be applying, you might want to consider if applying for the scholarship is a good use of your time if your purpose is to quickly find funding for your business.
You’ve seen the runaway success stories of startups that launched on Kickstarter or Indiegogo and you want a part of that! That’s understandable. After all, crowdfunding seems like such a great way to get your business funded. All you have to do is explain your product and put it online and people will scramble to pre-order it, right?
Well, for all the crowdfunding success stories, there are hundreds of flops. That’s because crowdfunding is a lot of work. Most people who have successful crowdfunding campaigns produce videos and prototypes first before launching their products. That takes time and money. In addition, in order to be successful on the platform, you need to have a lot of early sales – which means that you’ll have to build demand for your product before you even put it up on Indiegogo.
That takes time and while you’re doing that you could have been building other parts of your business. Of course, if it is successful you’ll end up with a lot of orders and money. But since there are always kinks to work out in any new business, too many customers right away could be a recipe for disaster as well.
There are some great success stories involving crowdfunding and college students though – like the Eat Your Coffee Bar company, which raised $44,109.
Small Business Loans for College Students
Another way to get money for your business is to look into small business loans. This can be slightly more difficult if you’re a college student, since you likely won’t have a great credit score yet and you probably won’t have a steady income – two things that lenders consider when deciding whether or not to approve loans. For most small businesses, lenders will look at the credit of the owners since your business is new and you likely won’t have an established business credit score.
That said, there are some banks and credit unions that might be willing to take a chance on a small business run by a young entrepreneur. Look for programs specifically aimed at youth small business in your community. You should be aware that usually these programs will only offer relatively small loans.
There are also ways that you can improve your chances of getting a loan. For example, you can get a cosigner. A cosigner is someone who has good credit and is willing to sign on your loan and take responsibility for it if you’re unable to pay it back. But since you’re a startup and your financial future is not guaranteed, it might be hard to find someone who would be willing to take this risk for your company. One way people do this is by taking on a partner who is older and has better credit or getting parents to help out.
If you can’t find a cosigner, you can also try to improve your credit score and try to increase your business credit score. These things take time so you might have to wait before you can qualify to borrow money.
Banks are notoriously difficult to get funding from and that’s especially the case for those who are still in college. According to statistics, 90 percent of private student loans have cosigners because students tend not to have high enough credit in order to qualify for on their own. The same can be said for business loans – college students are very unlikely to qualify without a co-signer.
However, there could be some special funds set aside at small banks or credit unions that are targeted at youth businesses and, if so, these lenders might be willing to lend you money by looking at alternative underwriting criteria such and your business plan or idea. Also, as you build your business credit score and your personal credit score, you might be able to have a good enough score in order to qualify, especially if you can prove that you’re earning income via your business.
The benefit of a bank loan is that they often have flexible terms and relatively reasonable interest rates. Their rates will be higher than an SBA loan but lower than a credit card and will vary depending on your credit. You will often also be able to choose between a fixed or variable interest rate and you’ll have anywhere from two to 10 years in which to repay your loan.
When you think of microloans, you likely think of the small loans that are often extended to small business owners in the developing world. But there are also microloans available to small business owners who need a little extra cash to launch their business or cover a cash flow shortfall.
There are lenders that offer microloans on their own, but there are also Small Business Administration-backed microloans. SBA microloans start as low as $500 and can go up to $50,000. They have a maximum term length of 6 years and interest rates of roughly between 8 percent and 13 percent.
The criteria used to determine eligibility for microloans is much less stringent than for other types of business loans, but you’ll still need a good credit score and a business plan. Some also will require collateral.
If you’re looking for business funding, you will likely come across Small Business Administration loans and wonder if you could qualify for them. There are a few different types of loan programs that are backed by the SBA. They offer 7(a) loans, which are guaranteed up to $5 million and can be used for working capital, equipment, or expansion. There are also the 504 loans which are also guaranteed up to $5 million and offer help for buying land, machinery, and facilities. All these loans are offered via other lenders.
The interest rate on the loans is reasonable since loans of more than $50,000 with a term length shorter than seven years charge just 2.25 percent more than the prime rate. Loans over $50,000 and more than seven years charge 2.75 percent more than the prime rate.
Repayment on loans for working capital is seven years, on loans for new equipment is 10 years, and on loans for real estate purchases up to 25 years.
The problem is that most college startups wouldn’t qualify for these loans since many lenders require that you have a high credit score, that you’ve been in business for several years, and that you have sufficient cash flow to support the debt.
Friends and Family
One way to get money for your business is to borrow it from friends or family. You might think that this is the easy way to do it, but it could actually be more complicated. While family and friends might be willing to help you out, accepting money from them comes with a lot of responsibility. If your friend or family member needs that money back soon, then you could harm your relationship if something happens to your company and you’re unable to pay them back.
Before you accept money from your friends and family, make sure that they’re able to absorb the loss if you’re not able to pay them back – or if you can’t pay them back for many years to come.
You should also make sure that you make the loan official by creating documentation around it. You want the loan in writing and you want it to be clear if the loan is being made to your company and not to you personally. If the loan is made to your company and your company is incorporated then you will not have to repay the loan if your company fails. If the loan is made to you personally then you will still have a legal obligation to repay the loan. Make sure that this document clearly lays out the terms of your repayment and interest that will be charged, if any.
Some family or friends might expect some kind of equity in your business for the loan or might offer to give you the money in exchange for equity. While this can take off some of the pressure of repaying the loan, it could dilute your equity. So it might not be the best bet for you to give away too much of your company when you’re just starting out.
If you’re like many college students, you likely got your first credit card the first week of school when companies were offering a free college sweatshirt when you signed up. But should you use that card to fund your business?
You might be able to use this credit card to fund your business, but in all likelihood you won’t have a high enough credit limit to make a big impact. Also, maxing out your credit card will hurt your credit score since you should only use around 20 percent to 30 percent of your available credit in order to get an ideal score.
Using your credit card as the primary means to fund your business could actually be bad for your business in the long run since you’ll have to pay more to borrow in the future if you don’t have a good credit score. Another downside is that credit cards charge very high interest and that will make it more expensive to borrow. If you’re paying 20 percent on what you borrow and your business’ margins are 20 percent to 30 percent, that will greatly impact your profitability.
Another option is to get a business credit card. It is important to get one to start building your business credit score right away, but you might struggle to qualify for one if you don’t have great credit yourself. A cosigner could help, but you still won’t want to use a business credit card as the primary funding for your business because of the high interest rates.
Author: Nate Matherson