One of the main challenges facing aspiring business owners is financing. In most cases, small businesses simply do not have the funds to operate and grow the way the owner envisions or wants. That’s why there is such a high demand for small business funding.
The problem is, there are limited options. Few individuals or organizations are willing or able to finance new businesses. Also, competition is fierce. Lenders have to decide which firm can offer the best return on their investment. In this article, we’ll take a look at the options that are open to you when you have a business idea:
- Venture Capital – while venture capital has a somewhat negative reputation among small businesses, venture capitalists are just people who want to invest money. They have a responsibility of ensuring that they will have good returns by minimizing risks. If you are interested in tapping these types of firms, it is important to note that in most cases, they only invest in exceptional start-ups. They tend to prefer companies that focus on new markets and those that develop new products.
- Commercial Lenders – banks are a common source of funding for small businesses. While banks don’t invest in businesses, they lend money to them. But just like venture capitalists, they scrutinize the business to see if it is worth lending to. It can be challenging for start-ups to secure funding this way unless they have collateral.
- Small Business Administration (SBA) – the SBA was set-up to provide advice and funding for small businesses. Local banks typically administer SBA loans. One important requirement is that a third of the business capital must come from the owner. Personal assets can guarantee the rest. If you can secure funding from an SBA-certified bank, do so. These tend to be more business-friendly than commercial loans.
- Friends and Relatives – people often underestimate how willing their friends and relatives are to helping them. While it can be hard to mix your personal life with business, it can be worth it. The terms of the loan are often lax because they trust in you. Just be sure that the repayment details are ironed out early on to prevent misunderstanding.
There are many other sources of funding you can check out for small business grants. Opportunities depend greatly on your location, industry, and expertise. For example, there may be certain local government agencies may be tasked with helping small businesses with funding.
On the other hand, you can also check out if there are private investors who may be interested in your proposals. If you decide to do this, connections are important. Getting the chance to present your business plan to would-be investors is fifty percent of the task. It’s all about having the courage to go out there to present your business. You won’t get money for anything. So it is important to do your work beforehand to find out which individuals, groups, or organizations will be interested in your proposals.