How to raise money for your small business: Honestly

5 minute read


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

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

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
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

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