How to Find Funding for a Small Business

Most people who decide to go into business for themselves will require some type of financial assistance. While a lot of people automatically jump to the thought of a small business loan, it is not the only method for obtaining business funding. Many options are available, including: A small business loan; A government grant; A private grant; Self funding; Funding by credit card; Raising capital through partnerships or incorporation; or Finding a business "angel."

Instructions

Difficulty: Moderately Challenging

Things You’ll Need:

• Information concerning funds you have available for the business;
• Information about your potential borrowing power;
• Information about the cash available via credit cards;
• Information about government guaranteed loans for small business;
• Information on private entity loans available for small business;
• Information about local bank loans available for small business;
• Information on any government grant programs for small business;
• Information on any private grant programs available for small business;
• Information on any local, state, or federal economic development grants for small business;
• Information on forms of business that allow for raising capital;
• Informatiion on business "angels."

How to Find Funding for Your Small Business

1. Determine if self-funding through use of personal savings is an option. Before deciding to use your savings for that purpose, ask yourself the following questions:
   
   Can I afford to lose everything if the business fails?
   
   Realistically, no business owner can totally control the potential success or failure of their business. Sometimes outside sources play a role in its success or failure. Failure is possible and you should not self-fund the business if you cannot afford to lose everything.
   
   Will my family support my decision to self-fund?
   
   Using personal funds for a business should never be done unless everyone in your family agrees with the decision. The loss of family funds affects them as well as you.
   
   Do I have back-up funds should other personal emergencies occur?
   
   Sometimes things happen over which we have no advanced warning or control. It is important to have a back-up plan in place to handle such unforeseen circumstances.
   
   Do I have enough money to start the business properly or will I have to cut corners?
   
   Starting a business with insufficient funding isn't a good idea. Cutting corners can be dangerous if not handled properly. Make sure that the funding you put into the business is enough to keep it afloat.
   
   How long can I survive without making money from the business?
   
   Most businesses will not begin to make a profit until their second, third or even fifth year. If you cannot survive without drawing money out of the business, then perhaps your savings would be better spent for that purpose rather than to fund the business itself.
2. If you don't have enough savings, determine if you have another self-funding option like borrowing against an existing personal asset such as a rental property, a boat or stocks and bonds. If it is possible to borrow sufficient money to fund your business and you are willing to ultimately risk that asset, if the business fails, this may offer a viable option.
3. Decide if you can take out a second or third mortgage on your home or land, keeping in mind that this should be a family decision based upon the answer to the question: Am I willing to risk the loss of my home or land?
4. Decide if credit card funding is an option. Most good small business counselors advise against funding a business that way. However, lots of businesses do just that. If it is an option that you wish to explore, ask yourself the following questions:
   
   What is the interest rate on the card?
   
   There are a few credit cards that offer a low interest for small business purposes. In those instances, funding through such cards becomes a viable option.
   
   What if the business fails?
   
   If your business fails and you are temporarily out of a job, how will you continue paying your credit card bills? Sometimes that is a non-issue because a spouse or significant other can pick up the slack. However, if paying your bills is dependent upon you working, it may be an issue you need to deal with.
5. Determine if there are any government guaranteed loans available for your business. This information can be obtained through the Small Business Association (SBA) or their corresponding agencies the Small Business Development Centers (SBDC). One or both of these agencies are available in most states.
6. Determine if it is possible to take out a personal loan to fund your business. This can be a good option if the interest rate is lower than that you could obtain from a small business loan.
7. Determine if private entity business loans are available to you. If they are, then meet with the appropriate personal to find out if you are a viable candidate for such a loan. Obtain as much information as possible about the loan so that you can determine if it offers a reasonable option for your business.
8. Determine which local banks make small business loans. Local banks often like to finance new businesses that will help improve the economy and bring them more clientele. Check each local bank for their particular requirements and specifications for small business loans.
9. Determine if there are any current government-guaranteed loans available for small business. The Small Business Administration (SBA) or their corresponding Small Business Development Centers (SBDCs) provide free counseling in all areas of small business development. That includes funding options. They can give you information on SBA guaranteed loan requirements and specifications and help you determine which, if any, of their loans are available to you.
10. Determine if any small business government grants exist for which you are eligible. Your SBA or SBDC counselors can help you get information on these programs.
11. Determine if there are any small business private grants for which your particular type of business might be eligible. Most libraries carry a set of grant books in their research section that can help you find this information. Make note of any such grants that might apply to your business.
12. Determine if any local, state or federal economic development funds are available for small business development. Occasionally, communities develop pots of money for the specific purpose of developing new business. Chambers of Commerce are good resources to determine if such programs exist in your community.
13. Consider a business form such as a partnership, limited liability company, or corporation that makes provision for the raising of capital for the business.
14. Research to determine if there are any business "angels" making loans or grants to small business. While this type of information can be difficult to find, online searches and research through SBA and SBDCs can often be helpful in finding these individuals.
15. After determining and making a list of all of the possible options for funding your small business, prioritize them.
16. Beginning with the highest priority option, begin the steps necessary to explore that option thoroughly. No matter which option is chosen, it is certain to involve a great deal of paperwork, some additional research, thorough thought, and decision making. These same types of skills and thought processes will be required to run your business once it is up and running. Therefore, if you are unwilling to do what is required to get the business started, it is unlikely you will be successful in business at all.
17. One by one, follow through on each option until such time as you are able to obtain the needed funding, decide to abandon the idea or exhaust all viable possibilities.

Tips & Warnings

• Realize that you will more than likely be required to bring some funding to your business no matter what funding option you choose.
• Use all small business counseling options available to you, whether it is SBA, SBDC, bank, private business entity, an educational institution or some other source.
• Utilize as many resources as can be found about financing a small business.
• If you are eligible for a government or private grant, explore that option before proceeding with any kind of small business loan.
• Business forms like limited partnerships, LLCs, and corporations can offer a relatively simply method for raising capital for most types of business.
• Be thorough in your research, being careful not to leave out any possible funding option.
• Do not self-fund your business unless you can afford the loss.
• Do not enter into any loan program for which you cannot afford to make payments.
• Do not enter into any loan program without the approval of your spouse and family.
• Do not consider credit card funding unless the interest rates are reasonable.
• Government grants are not always available to everyone or to every type of business.
• Not all communities or states put money into small business development.