How to Finance Small Business Growth
Finding the funds to finance the growth of your small business is always challenging, and it's especially so when the economy is struggling. Traditional lenders like banks or credit unions almost always require a well-established credit history and assets with which to secure the loan--two items most small businesses lack. Nevertheless, there are always ways for the creative and determined small-business owner to secure the funds that will fuel his growth and greater success.
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Instructions
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Borrow from yourself. Money from yourself is the easiest to find and the cheapest to use. Sources of self-funding might include savings, credit cards, income from a second job or overtime, borrowing from a 401(k) or getting a home-equity loan. Carefully evaluate how you'll meet your basic needs and assess the risks involved as you invest in your own business. Ask yourself: if it were someone else's business, would you still invest?
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Borrow from friends, family or business acquaintances. Those who know you, who know your character and passion and care about your success will frequently invest in your business. These personal stake-holders invest in you as an individual, not simply in your business. Investments take the form of no-interest or low-interest loans, or equity stakes. Put any loan or investment arrangements in writing to avoid misunderstandings and protect against the damage that money issues may do to personal relationships.
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Ask local banks for a loan. For a growing small business that can demonstrate a track-record of success and a clear, professional business plan for growth, local banks can be supportive sources of financing without requiring an ownership stake in your business. Get to know the branch manager or loan officer at the bank where you have your business accounts, and ask her to advise you about the bank's business loan requirements--she can be an invaluable partner in getting your loan approved.
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Borrow from customers or suppliers. Customers who love and rely on your business are already sold on your product, so they're a warm market for possible growth capital. Suppliers also have a stake in your future growth (after all, growth means you'll need more supplies!). They can frequently help with extended payment terms, or will advance funds to a good business partner if they know there is security that they'll be repaid.
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Borrow from strangers. Your personal network can probably direct you to strangers with the means to invest in a growing small business. These "angel investors" typically require a formal investment contract and a stake in your business, so exhaust other funding sources before seeking outside investors, unless you're willing to surrender some ownership and independence in the process. If you do involve angel investors, include a clause in your contract that permits you to buy back their stake in the future.
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Contact the Small Business Administration (see Resources) for federally-funded loan and grant programs for small businesses. Though this source of funding can require a long time to navigate, millions of dollars are available in grants and loans for all types of small businesses. Requirements vary by loan or grant program, so be sure to review each program's literature carefully and seek SBA guidance as you travel through the process.
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References
Resources
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