7 Tips and Resources for Funding a Business From the SBA

Even more true than “it takes money to make money” is that it takes money to start a business. Either way, whether you are just starting up or you have ongoing funding needs, having your ducks in a row for where to seek funding is a good idea. The Small Business Administration has some tips for business funding and resourcesi.

  1. How much funding do you need?

An ongoing business finds this one easier, as they have either run into a cash flow crunch or they want to expand into a new market or business niche. They have previous experience in getting started in their current market and niche, and they can use that experience to determine how much money they need.

For the new business startup, determining your funding needs usually takes a bit more research. The SBA has helpful information for you, including a spreadsheet you can download with common business expense items to get you startedii. One common cause of many small business failures in their first two years of existence is running out of money, even if they have a viable business model.

  1. Self-funding your business.

They also call this bootstrapping and done right it can get your new business off to a good start. The “done right” part is not over-committing personal assets that comes back to bite your lifestyle. Sources for bootstrapping include:

  • You can use your own cash or savings.

  • Borrowing against your home or other assets is an option.

  • Turning to family and friends for loans or investment works for some.

  • Borrowing against a retirement account, if allowed.

The primary advantage of self-funding is complete control of your business. Besides not over-extending your personal resources, be careful about borrowing against retirement accounts or withdrawals due to penalties.

  1. Venture Capital Investors

There are investors out there ready to lend significant sums of money to those who have a viable and promising business model, a business plan, and the knowledge and expertise to make the business a success. Venture capital investors offer their funding in exchange for equity in the company, and they want some say in the operations. They want to invest in companies that they believe will experience rapid growth, and at some point, they take their profits by selling their equity.

Be ready for stiff due diligence. They want to see everything and a lot of detail. You must have a detailed business plan, descriptions of products and services, licensing and oversight requirements, and profiles of any other owners or key employees.

  1. Crowdfunding

The Internet opened so many new opportunities for doing business, as well as funding one. This works for funding a brand-new business or rolling out a new product. Usually through a crowdfunding website, the business seeks the attention of a great many people willing to invest in the business without an equity share.

Instead of equity, the Crowdfunders invest for a gift of some sort. Often it is the new product that their investment is funding. They can invest a small sum and get the gift that is will cost more to purchase after its rollout. This type of funding is good for the business owner as they retain complete control. Also, should their project or business fail, they do not need to return investments to the Crowdfunders.

  1. Conventional Small Business Loan

There are many banks, especially locally owned financial institutions, that will loan money for business startups or expansion. You want to approach them fully prepared, as they want to feel comfortable that you know what you are doing. Have a business plan, projected income and expenses projected out into the future, often for five years.

  1. Use SBA Lender Match for a Guaranteed Loan

There are a great many commercial banks that may be willing to loan to a business if the loan is guaranteed by the SBA. If you are not having luck getting conventional commercial bank funding, go to the SBA website’s Lender Match search to find a lender for your funding needs.

  1. Access SBIC and SBIR Programs

The Small Business Administration has two programs supervised by the SBA with the purpose of providing privately owned funds and management with SBA guarantees.

  • SBIC, Small Business Investment Company – If your business qualifies, these private investment entities use some of their own funding and some backed by SBA guarantees to lend you money.

  • SBIR, Small Business Innovation Research – This program encourages small businesses to engage in research and development that has commercial potential.

There is always money out there available to start and grow a small business. Keep these resources in mind for your business.

i SBA Fund Your Business document.

ii Calculate your startup costs, SBA website

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