Where to Get Money to Start a Business
Do You Need to Get Money to Start Your Own Business?
Ways to Get Money and Loans for Small Businesses
Many would-be business owners have great ideas that have a lot of business potential, but they lack the seed money or start-up funds to turn their ideas into reality.
Just because you don't have a fat bank account (or a rich uncle somewhere) doesn't mean your business idea will never see the light of day. There are many ways to secure funding, and some of them don't even require repayment.
Here are places to look for those dollars you need for your dream enterprise.
E*Bootcamp on Writing a Business Plan: Darden University
You Need a Business Plan to Get Start-Up Funding
First, before you start looking for funding, develop an understandable and comprehensive business plan. This will help you as well as a potential lender or investor in determining the amount needed for start-up and the potential revenues for those first critical months and years.
Your business plan should include the following:
- Description of the business and the products or services it will offer.
- Resources you have available to invest (including money, equipment, fixtures, staffing).
- Your expertise in the specific business (do you already know how to perform the service or create the product?).
- Your history in operating a business (list successes if you have them).
- Realistic (repeat, realistic) operating expenses for the first year and first five years.
- Target customer or client base.
- How you will reach the clients or customers to get their business.
- Location information—will you be near a good base of customers or clients?
- Market research—are you locating your business in an area that isn't saturated with the services or products you provide?
- Realistic growth plans for attracting and building clientel.
- Realistic revenue projections for the first year and first five years.
These things may sound tedious and they will indeed take time, but the above information will save you many hours and headaches as you go forward. These are exactly the type of questions you will hear from lending officers, potential investors, and other resources that sometimes fund start-up businesses.
Your Bank May Offer Small Business Loans
Business Loans From Banks
Yes, banks still lend money to businesses, even those that aren't yet operating. Banks are there to make money, and one way they can do this in a tight economy is by lending it and getting interest on the loans.
Depending on the nature of your proposed business, your credit rating, your history in the business (is this something you've been doing for years, or something new?), you may be able to borrow some or all of the start-up money you need for the business.
Shop around for rates, but be sure to start with your regular bank or credit union. The reason is that the institution where you already have your accounts knows your history and behavior with money more than any other institution.
Things to consider:
- Terms and time period of the loan: Can you pay it back early with no penalty?
- Are the payments manageable for your budget and first year or two of revenue?
- Do you want an outright loan or a line of credit you can tap into as the need arises? If you defer borrowing until you need the money, you may also be deferring payments.
- The reputation of the lending agency—check them out with the Better Business Bureau and through other organizations that monitor banking or finance institutions.
Loan rates can be negotiable, so arm yourself with some research on what lending agencies are offering, and start visiting the commercial loan departments in banks near where you live or where you'll open your business.
How to Get an SBA Loan
SBA Loans: Get Money From the Small Business Administration
Encouraging economic growth is a priority for the U.S. government, and in some cases, businesses can apply for funding through the Small Business Administration.
The paperwork for this type of funding is more extensive than some other sources, but you can usually process it through a local lender. The difference in this funding and a regular bank loan is that it is a government program rather than private funding through a regular financial institution. However, those institutions process the loans for the government.
Among the things you'll need to assemble for an SBA Loan application are:
- The application itself
- A statement of your Personal History
- Your Business Financial Statements (including Profit and Loss statements, licenses, loan application histories, revenue projections, overview of your business and other documents).
- Personal Finance Statement
- Your Resume (and resumes of others who will be principals)
- Income Tax Returns
These records and others are needed to apply for an SBA loan. Your financial institution (or another one in your area, if yours does not handle SBA loans) will have staff members familiar with the information you need to include in your application package and they can help you create a comprehensive submission.
Panel Discussion on Angel Investing: Stanford Graduate School
Crowd Sourcing and Angel Funding for New Businesses
Angel Funding is money injected into businesses through private investors. Usually, these investors use their personal money to back businesses. The term has become so common in recent years that many areas have local networks or resources for tapping into these investors.
In some cases, there are Angel Investment Groups, organized to bring investors and potential business owners together. Here are a few groups that have gotten high 'marks' from finance analysts in recent years:
- New York Angels: Has more than 75 members (CEOs, entrepreneurs, business leaders and venture capitalists). The group helps generate investments ranging from $100,000 to $1 million and also coordinates with other groups for larger ventures. The members also provide mentoring and other support to start-ups (or businesses that are expanding) to help ensure success.
- Pasadena Angels: Based in Altadena, California, this non-profit group does not charge fees and its 100 members have provided start-up investment funds of up to $750,000 for fledgling businesses. The group itself does not invest funds, but it serves to bring prospective investors together with future entrepreneurs to help facilitate funding.
- Investor's Circle: The 200-plus members in this San Francisco-based group focus their efforts on funding Green businesses and other enterprises that are environmentally savvy. It has generated more than $150 million in funding for 235 businesses and accepts applications year round.
- Ohio TechAngel Funds: Concentrates on Ohio-based ventures in information technology, medical technology and advanced materials. Entrepreneurs are invited to make presentations at monthly meetings.
- Tech Coast Angels: Billed as the largest investment organization in the United States, its 300 or so members have injected funds into more than 180 businesses in various technology fields. The group concentrates on Southern California and networks with other angel groups across the country to assess various opportunities for investment.
- Golden Seeds: Specifically targets businesses founded or led by women. Provides training as well as investments and is one of the largest and most active investment groups in the country.
These are just a few of the numerous Angel Fund Groups operating around the United States. Do a search for funds in your area, or that concentrate on things that are unique about your business (the service you provide, clients or audience you will serve, etc.).
You may be able to fund your start-up business through gifts of money
CrowdFunding: Start-Ups Funded Through Donations
Yes, you read that right—some businesses have gotten their start through donations! CrowdFunding is a fairly new way of raising money that allows prospective business owners to post information about their dream on a website and get donations from persons who want to help out.
Some entrepreneurs offer small gifts or considerations for donations of certain amounts (such as a dozen cupcakes for donations of $50 or more). The funding available through this method is usually modest, but it also doesn't have to be repaid. And, it generally requires much less paperwork than applying for a formal loan.
Websites offering these opportunities have varying criteria for being accepted into the program. Sometimes there are deadlines for reaching your financial goal. Some sites, however, will allow a business to remain online after the goal is reached and continue getting donations.
Kickstarter is one such group, billing itself as a 'funding platform' that focuses on creative projects. Their website lists topics such as Art, Comics, Dance, Food, Film & Video, Publishing, and more.
Do your research before signing up for this type of funding to make certain there are no hidden tax ramifications or other issues to consider.
Are you ready to start your own business? Take this quiz and find out!view quiz statistics
Checklist for Business Start-Ups
Examine the choices above and see where you stand in terms of business planning and potential expenses.
Analyze the types of funding you can get, and which are best suited for you and your business. Think about these questions as you consider the options:
- Are you comfortable making loan payments for a while?
- How do you feel about owing some of your profits to investors?
- How well do you handle challenges or failure?
- What does your family think about this idea?
- Are you willing to adjust your plans and goals after you review your business plan?
- Are you prepared to open your books to creditors and investors if you get funding?
Take the quiz here to see if you're 'ready' to launch a business on your own. Best of luck as you reach for and attain your goals!
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.