How to Finance a Business
When you are ready to finance a business, you have several options to consider for funding. Here are a few options that all small business owners should look at for financial support.
Getting money for your company doesn’t have to be a complicated procedure. If you have all the basics at hand, including a business plan, tax and business identification numbers, business bank accounts and other basics, then you are ready to choose the type of financing you are looking for.
To most small businesses just getting started can seem like an uphill battle. Unless you are using your personal credit to support loans, many lenders will help finance a business just getting started. There are ways to increase your chances even at the start. First prepare a killer business plan, then look for ways to increase your cash flow without borrowing. Business credit cards and vendor accounts are great ways to do that.
You can also seek private financing from vendor capitalists. If your business idea is anything that might boom and take off quickly many will be anxious to back you up in exchange for a percentage of ownership rather than traditional loan payments. The good part about vendor capital is that you have no monthly payments and you are not charged interest. If business doesn’t go as well as expected or even if it fails, you don’t owe anyone anything. That’s part of the risk of venture capital and why those types of lenders are looking for unique and inventive ideas that are likely to burst onto the scene.
The downside of venture capital is that you will then have business partners. In some cases they are silent partners who will not interfere with your business. In other people you may want them to help, especially if they have contacts and experience in your field. You either have to pay them a percentage of their business profit until the day you close the business or they sell their percentage back to you. If you decide to go with venture capital don’t ask for small loans. You will pay for it for the life of your business, so make it worth the money you will spend in the long run.
Another creative way to finance a business is to find grants that apply to you as the owner or the business itself. A grant is money to help with a special need and there are many steps to a grant application, but one of the biggest benefits to a grant is you don’t have to pay the money back – ever. You make no loan payments, no interest. You’re not giving away a portion of your profits to venture capitalists. And if the business fails you are also under no obligation to pay any money. If you find a grant that you qualify for it is worth the time to complete the steps to get selfless financing.
Once you have exhausted all the possibilities for free financing like venture capital and grants, banks are your next choice. When going for a traditional loan, it’s a good idea to check out all the information the Small Business Association has to offer. You can apply for a loan through the Small Business Association, but you should know that the SBA doesn’t really provide loans.
When you apply for one of their loan programs, you are asking them to support you. Then you’ll get a loan from a lender who works with the SBA to give small business money, because they know the SBA will return their money if you default. The process for getting approved for an SBA loan is tedious, but when you walk into the bank with their support, you are guaranteed a loan because there is no risk to the lender.
The Small Business Association has a representative who will guide you through the procedure and their website offers many helpful tips and articles to help you through the process more easily. Your SBA representative can also help you determine if you qualify for assistance. It can save you a lot of unnecessary work if you’re not ready. You can find out what is required on the website.
Banks and Private Lenders
If you choose to go to your local bank or other lender without going through the SBA, make sure you have all your information ready. At a minimum you will need your taxes and DUNS number as well as several credit card and vendor accounts in your business name to build credit.
Before you approach a lender, know exactly what you need and how much you need. That seems like a simple idea, but many new business owners ignore this step. There are several different types of business financing. You can apply for a property loan, start-up capital, equipment loan, or a line of credit.