Financing Your Business

Discover sources for capital funding to get your startup off the ground

Your business success depends on your ability to secure adequate financing. Being under funded is one of the most common reasons a start-up venture fails. Knowing where to look for funding is the first step to accessing capital; being prepared to convince investors to fund your business is the next. Before starting your search, consider:

How much money you need.
How you'll spend the money.
How you plan to repay the loan.

Take stock of your personal finances

The primary source for funding a new venture is personal finances. However, many experts say this method is the riskiest financing option. The reason: you're putting up your own collateral to finance your business. If you take out a second mortgage on your home or use a line of credit, you can wipe out your assets if your business falters. Other options such as credit card loans or tapping into personal savings are equally risky.

Be prepared

No matter where you turn for capital, you'll need to provide solid documentation that your business concept is sound. Be prepared with a convincing business plan, cash flow projections and personal financial statements and tax returns. With the right materials, you can convince lenders and investors that you'll be able to repay the loan.

Friends and family connections

Money that's raised privately can be a boon, because it may be interest free or low interest. However, you should be aware that interest-free gifts may have tax implications. Loan requests should be professionally presented and include detailed financial projections. Avoid the temptation to forego formalities with loved ones. Draft a promissory note when getting a loan from friends or family so that interest payments are clearly detailed. Be prepared that if the business fails, it could damage personal relationships with investors.

Go through banks or credit unions

If you can show that your business proposal is strong, you may be able to land a loan from your bank or credit union. These loans are issued in many types, with varying interest rates and maturity dates. Most are secured against hard assets, such as real estate or equipment.
Small Business Development Center. They can offer advice on how to make your presentation to bankers and direct you to banks that are start-up friendly.

Look for angel investors

Angel investors are individuals or groups that provide capital for business start-ups, often in exchange for ownership equity. More money is invested annually through angel investments than through venture capital financing.

Consider venture capital

Venture capitalists fund few start-ups and look to make large investments, typically over $1 million. However, the U.S. Small Business Administration (SBA) licenses and regulates the Small Business Investment Company Program (SBIC), which does make venture capital investments in start-up businesses.
SBIC program to see if you can take advantage of this option.

Apply for an SBA loan

Nike and Apple Computer got their start with SBA equity loans. The money doesn't actually come from the SBA; it comes from participating banks. The SBA simply guarantees the loan, which helps budding entrepreneurs who might not normally qualify for a loan.
SBA loan that's right for your new venture.

Assess the creditworthiness or investment potential of your business concept before seeking funding.
There's no silver bullet remedy for landing financing. So don't limit yourself by trying to force the wrong fit.
Have a sense of your strongest assets when pitching potential investors or banks.
Don't seek investors through classified ads.
Your financing should align snugly with your business plan.