When it comes to starting a fashion line, you need to first think about the bottom line. You probably know that it takes a major upfront cost before your brand will begin to turn a profit. Launching into your first round of garment sampling and production is one of the biggest and most daunting steps of launching a fashion startup because it requires an investment of a couple hundred to several thousand dollars, and a failure to get a handle on budget and funds up front could lead to your brand’s downfall. Just some of the costs to start and maintain a fashion business include:
- Fabric and Trim Sourcing
- Garment Manufacturing (sampling and production)
- Product Distribution
- Selling on Ecommerce Platforms
- Legal Support
- Marketing
Thankfully various avenues exist to help you gain capital to cover these expenses. Read on to learn about the 5 most common ways to finance your clothing line and the advantages and disadvantages of each.
1. Take from Your Savings
Ideally in this scenario, you started setting some money away when you decided to make your fashion startup a serious venture. One of the benefits to this clothing line financing strategy is that using the money in your own personal savings will leave you with no debt. However, taking money from an account like a retirement fund could still risk your personal financial health, and in the worst outcomes, force you into bankruptcy.
The combination of the cost of the startup, how much time you have available, and your own personal financial situation (including income, debts, and expenses) will determine how much you are able to save. Follow some basic financial advice to amass savings:
- Cut down on nonessential spending
- Consider increasing your income through raises at your current job
- Explore picking up a side hustle
If you’re at the very beginning of your savings journey, it’s important to know that it doesn’t hurt to start small. Even putting 10% of your income away for your fashion brand will help you move in the right direction.
2. Use Personal Connections
If you don’t have savings or what you do have isn’t enough to launch, then reaching out to friends or family can be a viable option. While asking for money is not the most comfortable option, pitching your community with confidence will demonstrate how prepared you are. Prepare for this meeting just as you would prepare to meet with any professional investor. You want to prove that your business idea has potential by showing a business plan and any revenue and profits you have projected and/or have already made on your concept.
This strategy does give you an advantage in that, with a family member or friend, you may not yet need to be established to earn their trust. However, anticipate them rejecting you even if they do have the money, especially if you don’t pitch your idea professionally. However, if you are fortunate enough to earn their support, a big advantage of this type of investment is that their terms and conditions will likely carry less risk than those from a large lender. You can probably receive and repay a certain amount of the financing without any interest.
However, this option also depends on how well you think your business can turn a profit later so that you can repay your supporter. Failure to return the money may strain, or even end, your relationships.
3. Take Out a Loan
It is common for fashion entrepreneurs to reach out to lenders. If this is the path you choose to take, start out by doing research on what kind of loan you need. Fees, maximums, interest rates, terms, and how quickly you can get the money varies from loan to loan. Different loans also serve different roles. For example, a business line of credit allows business owners a flexible amount of money that they can take out in case of any sudden damages. On the other hand, a term loan is best for larger scale costs like purchasing a warehouse. There are also one’s specifically designated like those for an equipment loan.
Then, you want to consider whether you want to get your loan from a bank, a credit union, an online lender, or a microlender. For example, a loan from a bank is great for lower APRs but online lenders are good if you don’t have collateral or lack time in business. Your credit score, amount of collateral, and previous business experience will determine what loan you get and from where in any case.
4. Reach Out to Investors
Angel investors and venture capitalists are other options for new fashion designers to consider. An individual or a firm will provide you funds in exchange for equity in your company. This means that they gain a portion of the business and can control how it runs. This can be beneficial if investors bring their expertise to your business, but be careful about how much of your company you give up.
While they are both investors, angel investors and venture capitalists differ:
- Angel investors are suitable for the startup’s early stages. They can choose a business that they think will profit even if it has not proven itself and earned money. Angel investors tend to give less but require less in returns and serve more as consultants.
- Venture capitalists are better for more established fashion brands to reduce their risk. This strategy is great for growing fashion brands that want to expand, and usually provide more money to the companies in which they invest. The average amount awarded from this investor type is about 11.7 million, whereas angel investors tend to invest closer to around $300,000. However, venture capitalists will want more stake in your company and possibly even control as a member on your board of directors.
In either case, before you can gain access to their capital, you will need to provide them with a strong pitch.
5. Crowdfunding
One way to raise money without giving up any equity is to launch a crowdfunding campaign. Many different platforms can help startups such as Indiegogo, Kickstarter, and GoFundMe. This Italian-made athletic brand, MUDAXpro, fully launched their business off the ground with a successful Kickstarter Campaign, surpassing their $5,000 goal.
Crowdfunding sites’ features and policies vary but with a similar premise: businesses pitch their product on the platform and individuals decide whether or not to invest money.
Each platform is unique in its fees, funding models, payout policies, and more. It’s important to do research on what platform works best for you. Some treat the funds as a peer to peer loan where you have to pay back your crowdfunders; others may require you to provide a reward to your supporters. Other platforms like Patreon are great if you already have a dedicated audience (you can build an audience through producing content like a blog or podcast).
Final Thoughts
With how capital intensive starting a fashion line can be, you may need to use a variety of these methods to find your perfect funding mix. Weigh the benefits and risks of each before going all in on any single strategy. Even experts advise that you use a mix of taking on equity and debt. The final decision on how you fund your fashion line will depend on how much it will cost to produce your products, how much you have already, and what types of risks you're willing to take on.
Also consider using free internet resources to help launch your line, as well as companies that help fashion designers like you connect with reliable manufacturers and oversee the clothing line’s production process. Connecting with experts like that will save you money by helping you to avoid mistakes.
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