Small Business Management

Financing To Start A Small Business

Financing To Start A Small Business: An Overview On Equity And Growth Options

Financing To Start A Small Business

Capital is the lifeblood of every business. Small business owners are faced with the challenge of raising capital to fund startup businesses, initiate small business growth financing and to counteract short term cash flow problems. There are several avenues to pursue for small business financing. Each has its advantages and disadvantages and the degree of suitability may depend on the individual circumstances of the business. Here is a primer for small business owner financing.

Commercial Banks:

Commercial banks are the most obvious form of financing. Small business funding can be sought be securing a loan over goods and property. Stringent guarantees will be required over something of tangible value such as a home or investment property. You can make enquiries at the local bank level to determine applicable interest rates and setup charges. You will be required to undertake an interview with the loan officer. Most lending institutions will also require a copy of the business plan as supporting evidence for the loan application.

SBA Assistance Program:

The US Small Business Administration provides special assistance loans for small business. These programs are termed 7(a) 504 disaster assistance loans. The aim of the SBA is to help US citizens start, build and grow small businesses. You can learn more about how to qualify for this type of financing at the official SBA website.

Private Investor Financing:

Some entrepreneurs, existing business owners or investors regularly seek business opportunities to invest in. This can be a source of money to start a small business for individuals who have an existing viable business that has run into short term difficulties or for determined startups that have a strong business case and can convince the investing parties that the concept will work. This is often termed angel investing. Sometimes, the advantages of this type of financing are that you can draw on the expertise of experienced business operators who will lend their support, guidance and expertise because they have a vested interest in a positive business outcome. Small business equity financing is where capital is exchanged for a position in the business. 

Venture capital financing:

Venture capital is another source of funding to start a small business. Venture capital is very difficult to rise due to the stringent standards employed by VC personnel for assessing the business potential. In most cases you will be required to provide a substantial equity interest to the VC company. You will need to have strong documentation and presentation skills to secure interest from this source of financing.

Government Grants:

Government programs sometimes provide assistance to companies in emerging industries or to operators who meet the qualification standards. The criteria for this differs depending on the government organization. You will need to make enquiries at the local level to find out more about the available options.

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