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How to Find Funding for Your Small Business

Jacob Wolinsky
Jacob Wolinsky

Securing funding for your business can be a bit tricky, but with a little bit of work and planning, you can get the money you need to build your dream business.

If you've got a great idea, the only thing that could be standing in the way of making it into a small business is money. How do you go about finding funding for your small business? 

If you can't fund your business using the money you already have, the primary source of funds will be loans, but there is also a limited supply of grants available. Crowdfunding and venture capital are two other potential sources of funding. 

How to get a loan

To get a loan, you will need to write a business plan. The best ideas are unique ones that will only face competition from legacy companies and solutions that are unlike the product or service you're providing. The best ideas can also be for companies that will be the only business of that type in the area where you want to set up shop. 

Another option is to start a business that isn't unique or the only business in the area, although it already has customers. For example, if you've made a lot of connections in your industry and already see the demand that's not being met, you should be able to show that you already have customers as soon as you open the doors.

Funders want to know that they'll get their money back after the business is up and running. Therefore, you must be able to show that you will be able to get customers and successfully grow the business despite any competition you will face. 

Write a comprehensive business plan

A business plan should not only include details about the business but also about your work experience and education. It should make it clear to the bank or the U.S. Small Business Administration that not only do you have a great idea, but you also know how to make it a successful business. 

The business plan should also include a snapshot of the industry your business will fall into, including key competitors in the market. Some standard sections include: 

  • Executive Summary
  • Company Background
  • Products and Services
  • Industry, Competition and Market
  • Marketing Plan
  • Operating Plan
  • Management, Organization and Ownership
  • Goals and Strategies
  • Financial Assumptions
  • Income and Expense Projections
  • Cash Plan
  • Profit and Loss

The reader should have a good idea about your business, the financial opportunity it presents, how much money you are requesting and how you plan to allocate those funds. The rest of the business plan digs further into the details of the business.

You must be realistic as you write your business plan. Every business faces competition, even if not directly. There will always be challenges when operating a business, but you must show the funder that you're aware of those challenges and that you have a plan for how to deal with them successfully. 

Start with the Small Business Administration

When you have your business plan ready, it's time to start looking for funders. Your first stop should be the U.S. Small Business Administration, which has several low-interest loan programs for small businesses. The SBA is an especially good option if your business is new, while traditional banks may be the better option for an already established business seeking funds to expand. The SBA has three main loan programs. 

The 7(a) loan program is the most common one because it's the most flexible loan of the three options. Borrowers can get up to $5 million to be used for working capital, to buy equipment or real estate, to pay for startup costs or refinance debt. Microloans are small loans of less than $50,000. The SBA fills a gap left by banks, which typically don't offer loans this small because they aren't profitable for them.

The 504/CDC loan is intended for financing the purchase of real estate or significant fixed assets, such as large equipment or improvements to land or buildings. Regardless of which SBA loan program you are interested in, you will have to work with a lender that's approved by the agency. That lender will determine whether approval will be granted. To find an SBA-approved lender, you can use the agency's Lender Match tool

Consider the Small Business Lending Fund

Aside from the SBA, there is one other source of government loans, and that is the Small Business Lending Fund. The fund was established in 2010 by the Small Business Jobs Act and is designed to provide capital to individual community banks and development loan funds. 

The point of the fund is to encourage small business lending. It gets community banks and small businesses to work together, create jobs, and promote economic growth. The Treasury Department has invested more than $4 billion in 332 institutions through the SBLF program. The total includes $3.9 billion in 281 community banks and $104 million in 51 community development loan funds, according to the Treasury Department. 

To learn more about the program and receive a copy of the application and guidance for filling it out, you can check out the Treasury Department's overview

If you can't get an SBA loan or a loan from the SBLF, you will have to look into a loan from a traditional bank. Most lenders have funds set aside just for small businesses. The interest rate will probably be higher than it would be on an SBA loan, but established companies that can't get an SBA loan will have no other option for a business loan, unless they want to accept a loan from their friends or family.

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Investigate available grants 

Other than loans, some grants are available for small businesses, but competition for grants is exceptionally tight, and there are no grants for many types of companies. Your business will have to meet specific requirements, even to qualify to apply for a grant. Those requirements will differ based on the entity that is offering assistance. 

The SBA also works with various organizations to provide grants for small businesses. Most government grants are specific to certain industries, so there may or may not be grant money available to you. The SBA has a resource page where you can learn more about various grant programs.  

Filling out an application for a grant does not mean you will get the funds, even if you meet all the requirements of the grant. It will be up to the funder to decide who will receive grant money.

Consider crowdfunding and venture capital

Another option is crowdfunding. With crowdfunding, you don't need to write a full business plan. You also don't need to meet any specific qualifications. However, you have to offer incentives to funders based on how much they contribute.

In some instances, you may be able to solicit venture capital, but you will likely have to give up equity in your business to do it. You will probably require much more guidance when it comes to working with venture capitalists.

Securing funding for your business can be tricky, but with a little bit of work and planning, you can get the money you need to build your dream business.

Jacob Wolinsky
Jacob Wolinsky,
business.com Writer
See Jacob Wolinsky's Profile
Jacob Wolinsky is the founder and CEO of ValueWalk. What started as a hobby ten years ago has turned into an acclaimed financial media empire with over five million views a month. Before starting ValueWalk, Jacob worked as a private equity analyst, small-cap stock analyst, and in hedge fund business development. Jacob lives with his wife and four kids in Passaic, New Jersey.