Financing your business

Starting a fashion business takes money and one of the reasons many new labels fail is they don’t start with enough. Its important to wait to launch your business until you have a solid financial plan and know where the funding is coming from for the first few years.

Its very rare to get an investor for a new fashion brand until there is a proven record of several years of steady sales to attract outside support. So how do designers finance their start ups?   

Personal sources - Most designers rely on personal sources of funding for their first few years. This usually includes income from full-time jobs or freelance work such as designing for other brands. This can be supplemented with income from private clients or from selling small batch product at events, such as pop-ups or markets. Personal savings and loans from family or friends are also very common. Credit card debt is expensive and risky so if you go this route be careful! Shop around for low interest rates and stay on top of your payments to avoid expensive debt and build good credit to qualify for better financing options in the future.

Outside financing - Eventually, designers may need outside financing to support their growth and increased production. To attract outside funding you will need to show a solid and realistic business plan with a cash flow strategy, proof of sales and data to back up your projected growth.

Loans provide funds that you agree to pay back, with interest, by a future date. For designers they often come in the form of Small Business Loans from organizations such as the Small Business Administration, local development associations, or groups who support minority or under represented entrepreneurs. Bank loans are common but are often the hardest to get and may require you to have significant assets to secure them.

‘Factoring’ provides cash advances based on your current orders to support production of those orders much like ‘purchase order financing’. A ‘line of credit’ from a bank allows you to only access the amount of money you need (vs taking a lump sum) and are secured by assets such as your inventory.

Partnering with factories or suppliers with whom you have strong relationships can be one of the best ways to finance your business. They understand your product and can ensure better payment terms to secure your materials and manage your production.

Equity investors - Equity finance means that the investor becomes a part owner of the business and shares the profit the business makes. When they give you money, you issues shares of ownership in your business. Ideally an investor will be a strategic partner with business knowledge, connections in the industry and access to technology and other resources to help you. Most fashion investment comes from within the industry so these are often people you have worked with in sales or production or may be former fashion executives and mentors. Angel investors are wealthy individuals who invest their own money into small business while Venture Capital comes from groups of people usually focused on a technology or data aspect of a product to ensure rapid scale.

All of these outside funding options have specific pros and cons and you should research each opportunity throughly and be sure to surround yourself with good advisors when making financial decisions.