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How Do I Fund My New Business?

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Do you have the cash you need to get your business off the ground? Some startup companies require a lot of cash, while others can operate on a low budget. No matter how much money you need, there are plenty of ways you can acquire funds to get your business up and running!

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Some of the ways to obtain funds include:

  • Self-funding
  • SBA guaranteed loans
  • SBA investment program
  • Venture capital
  • Crowdfunding
  • Financial assistance from friends and family

If you want to learn more about each of these methods to finance your small business, keep reading!

Self-Funding

If you have your own money to invest in your business, self-funding is the place to start. Some entrepreneurs save for many years to get their businesses up and running. Others might suddenly run into a large amount through inheritance, and others might take out a second mortgage to finance their dream. No matter where you got the funds, there’s something satisfying about financing your own business.

Most small businesses are at least partially self-funded. If this is an option for you, it’s also the easiest way to finance your business. You don’t have to worry about dealing with investors or the worry of having to pay anything back. However, it’s important to be cognizant of the risk involved with investing your own money.

It’s also important to note that many entrepreneurs don’t have this as an option. If you can’t self-fund, you’re not alone! You’ll just have to seek funding from outside sources. If you fall into this category, don’t worry: there are still lots of options for financing your dream business.

SBA Guaranteed Loans

The U.S. government wants to see small businesses grow. That’s why the Small Business Administration helps entrepreneurs through guaranteed loans. Although the loans themselves come from private investors, the SBA will guarantee up to 80% of the loan. This significantly decreases the risk involved with investing in a small business. It can provide an opportunity for you to connect with investors, too.

The terms of SBA guaranteed loans are similar to bank loans. Keep in mind that there are certain requirements your business must meet in order to qualify for these loans. You’ll have to check them out yourself since they vary from one industry to another.

Small businesses have several options on what they can use for collateral on these loans. Some of these options include:

  • Real estate
  • Machinery
  • Accounts receivable
  • Savings accounts
  • Stocks or bonds
  • Life insurance policies
  • Personal endorsement of a guarantor

Of course, you will have to pay back your SBA loan at some point in the future. This will be a problem if your business doesn’t become profitable. But with careful strategizing, you can make your business more likely to profit.

SBA Investment Program

The Small Business Administration also has an investment program to help finance small businesses like yours. This program will connect you with an investor who is licensed by the SBA. The SBA has an entire online directory of Small Business Investor Companies (SBIC). You can look at where they’re located, how big they are, and what industry they are in.

After you’ve found an SBIC that you think is a good match, present your case to the investor. The funding that SBIC gives to small businesses can be the organization’s own funds as well as SBA-guaranteed funding. These investors will invest through debt, equity, or both.

Just like with a guaranteed loan, you will need to meet certain requirements in order to qualify for the SBIC investment program. Over half of your employees and assets must be within the United States. You’ll need to meet the SBA’s criteria for small businesses. Your business will also need to be in an approved industry.

Venture Capital

Venture capital is money from investors who want to help you start your business. Often, they are more experienced and successful entrepreneurs. However, venture capitalists usually don’t just invest through debt. They also want to benefit from your business by sharing in the equity.

There are pros and cons to this. It’s great to use venture capital if you’re not an experienced entrepreneur. You can get expert advice from someone who’s been in your shoes before. But, on the other hand, you may not want to give up total control over your business. The idea of someone else having some equity in your company could sound overwhelming. You’ll have to weigh your options to decide if you’re willing to loosen up the reins in order to get the funding you need.

Crowdfunding

Crowdfunding is easy today thanks to sites like Kickstarter, Fundable, and GoFundMe. You can share about your crowdfunding campaign on social media. This will also drum up interest for your business before you launch. The internet is a great place to find investors when you really don’t know where to look. You can connect with people all over the world who take an interest in your business.

Crowdfunding also shows you that every little bit really does help. Whether an investor wants to donate $20 or $20,000, it adds up!

Using a crowdfunding website is also an effective use of your time. You can include all the information you want about your business in one easy-to-access place. Visitors can sometimes see who else is investing and get other incentives like cool products and future discounts. However, the entrepreneur still keeps their full stake in the company.

The downside with crowdfunding is that it’s really only a short-term option for financing. This kind of financing will only help your business with the initial launch. If you need ongoing help with financing your business as it scales, crowdfunding isn’t the best way to go.

Financial Assistance from Family and Friends

Your loved ones have a personal investment in your life. They’re probably the first people you told about your great idea for starting a business. Some of them may be willing to put their money where their mouths are.

It could be difficult to raise money from people in your personal life, but there are ways you can do it that will make it less awkward. Instead of just showing your loved ones a business plan, show them well-research financial projections. Some entrepreneurs might offer their friends and family equity in exchange for financing. Others will only take investments through debt. No matter what you choose to do, make sure you emphasize the risks that come with investing.

Summary

Many entrepreneurs will use a combination of these methods to fully fund their businesses. What’s right for you will depend on what type of business you’re building and your personal circumstances.

If you have the means, self-funding your business could be the easy choice. But it does entail a large amount of risk. The Small Business Association offers a number of options for small businesses. If you meet the requirements, you could qualify for a loan that’s guaranteed by the SBA or the SBIC investment program.

Many small businesses get off the ground thanks to venture capitalists who not only invest their money but also their time and experience into your growing your business. Using crowdfunding platforms like Kickstarter and GoFundMe makes financing your business venture easy. Lastly, going to your friends or family for funding is always an option. You might be able to fund your business through just one means or through several.

Conclusion

Getting your business financed is just the beginning. You also need a solid marketing plan. There are still so many decisions you’ll have to make as an entrepreneur. If you can, get as much help from outside sources as possible. One of the ways you can do this is by hiring a business consulting service and networking with other likeminded entrepreneurs. No matter how much business experience you have, you can always benefit from a more experienced entrepreneur.

Published: June 5, 2020
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emerson deoliveira

Emerson De Oliveira

Emerson De Oliveira (pronounced Day-OH-lee-VAIR-uh) started his career in the public service sector. Emerson is an entrepreneur and a blogger focusing on startups and small business development. He has shared hard-won experiences as a successful business leader on his entrepreneurial resources blog, where he also regularly posts business tips, ideas, and suggestions as well as product reviews for aspiring and established entrepreneurs. With a decade of entrepreneurial experience, Emerson believes in leveraging on strategic partnerships and technology to launch and scale businesses digitally. Emerson is the Founder and President of Negotium Concepts, LLC. a business consulting firm located in Indiana. Follow him on Twitter, Facebook, and LinkedIn.

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