If you’re starting out as an entrepreneur, you know that you will probably have to get funding. There are some who are lucky enough to pay for their business out of their personal finances, but that isn’t usually the case. You’ll need funding for equipment, inventory, a lease, staffing, and utilities. You can’t assume that you can start paying for things from your profits once you start, either. You’ll need to plan out in advance what your costs will be well into the future, so that if your business doesn’t do as well as you expected, you’ll be able to cover everything. You certainly don’t want your promising business to fail because you don’t have enough funding.
Established businesses need funding too. Access to cash can be crucial for taking advantage of an opportunity, or making a big purchase. Here’s what you need to know about grants, loans, and angel investors.
The Importance of a Business Plan
For any type of business funding, you will need to produce a detailed business plan to show that your business is viable. Lenders, investors, and granters want to be confident that you will be able to pay back loans or provide a return on their investment. The government doesn’t want to give a large grant to a business that will likely fail.
Your business plan should be as detailed as possible. You should outline your project’s costs and revenues, and show how you arrived at your numbers. Included with your projections should be a marketing plan that shows what you will invest and what market you will target. Finally, it should outline how you plan on operating your business. How many employees will you need? What type of jobs? How will you price your inventory? Getting into these details will make your plan strong and help convince funders to help. Once you have a plan in place, you can go looking for funding.
Government Guarantees
The Small Business Administration (SBA) has a number of programs to help you fund your business. One of them is that it guarantees small business loans for qualifying businesses. The loans don’t come from the SBA itself, but it does allow lenders to confidently loan money because they will guarantee it. You can go to your closest or preferred bank for the loan, and then provide them with the paperwork for an SBA guarantee.
To qualify for a loan guarantee, you will have to kick in at least one-third of the capital that you need for your business. Make sure that you get your loan from a certified lender. This is the group of banks that the SBA works with, as they have shown a long track record of being legitimate.
Business Loans
It can be tricky to get a small business loan from a traditional bank. Your business won’t have any track record, so you may have to get a loan based on your personal finances and credit history. Banks are in the business of protecting money and making money, not in giving it to unstable situations. They are very common for businesses that have a good history and are well-established.
Businesses that have built up a history and have assets are very likely to get a loan. You might need a loan for any number of circumstances, such as needing capital for an opportunity, getting over a cash flow crunch, or buying a large piece of equipment. When deciding what type of financing is best for you, you will have to weigh the pros and cons. A bank loan can be a savior, however, you will have to decide whether you can afford to carry a debt and whether it will be worth it even if you can.
Angel Investors
Finding an angel investor is quite simple, as there are websites specifically devoted to connecting investors with businesses. Angel investors are people who invest their own capital into a business. They usually work with startups and businesses that are in their early years that have shown potential. They are a viable option, however, you will have to share your profits with them. You also might have to cede some control over your business. Some people don’t like those aspects of bringing an investor aboard, so you will have to choose what is right for you.
If you are well-established, and have already experienced a number of years of growth, then you may want to seek out a venture capital investor. It is very difficult to find this kind of funding, and even harder to get approval. Venture capitalists look for strong businesses to invest other peoples’ money into. They tend to avoid risk, since it’s not their own money that they have set aside. They also tend to invest in companies that could bring them a massive return.
Crowdfunding
As far as financing options go, crowdfunding is relatively new, having come into vogue in the last 10 to 15 years. If you have a great product, then you can put it out into public and seek investment from people who want to see your product made. They can pitch in as much as they want, and you can offer rewards for certain levels of funding. For instance, you can offer 25% off the purchase of your product when it becomes available, or let funders select a special color. The sky’s the limit for the type of reward, and you will have customers for life if they feel like they have something to do with the success of your company.
As you can see, whether you are in the early days of business planning, or are a well-established business looking for cash, there are options for you. What you have to do is go out and research, and find the funding source that works best for you and your company. Then you’ll be able to get your business off the ground, or jump on any opportunity that comes your way.