10 Sources of Finance For Small Businesses
Many people have a burning desire to be their own boss. Many want to be able to create something new and exciting, and build it into an empire. Without these people, we would not have the incredible inventions that we have today.
The saying “it takes money to make money” is a very true statement. It is easier to make more money, when there is money available. Don’t work for the dollar – let the dollar work for you (investing). Whether it is to create a business or put in a stock market, there are multiple methods of financing a small business.
Combining the desire to be a boss or having a brand new product idea and making money work for us can be a difficult thing. Often they do not come hand in hand, and that is why this article is about how to find ways (10 of them) to come up with financing for the new product.
Yes, this is a possibility. Maybe someone has been in the workforce for the past 25 years and has created an incredible savings account and will give you a personal loan . This idea that they have conceived is well beyond a good one. They could use that money to fund the initial start for their company. It could be used for research and development, marketing, or creating the product in general. There is no limit to what it could be used for.
Some have said that investing that hard earned money is one of the best ways to see results. It means that much more to the investor knowing how and where that money was earned.
This is an incredible option and has put many successful people on the map. People with money may be looking for a way to invest it through any type of avenue. They may not be looking to invest it, but have the capital.
elevator pitch. Talk to everyone about it. The more you talk about it – the
more you believe in it. The more that it is believed in, others will start
believing in it as well. This will in turn get other people interested and they
will want to either gift you the money, or give you the money as an investment
and respect a return.
Be careful as this may turn south. Many who have gifted or invested money expect that money back, plus some. If the company tanks and there are no funds available to pay the lender back, there might be a sour feeling. Sadly enough, money can bring out the worst in people.
Venture Capitalist (V.C.)
In recent years a television series that has been increasing traffic is Shark Tank on ABC. Entrepreneurs with fantastic/not so fantastic business ideas approach six very wealthy venture capitalists (an investor who provides funding for a portion of shares within the company) ready to pitch their idea.
The end goal is to have one of these V.C.’s offer them startup money to help in many numbers of ways. They give a quick, very rehearsed pitch and then wait for their response. The V.C.’s often ask many questions to understand more about the business and the model. The offer is either made or they tell the entrepreneur that they are not interested.
This may be an excellent way to get funding for a Small Business. If the business is booming and has a lot of room for growth, many V.C.’s will want to get on board. They money will not have to be paid back, because they are now part owners of the company. The investor then becomes an incredible resource of tools.
In order to go this route, you will most likely have to search the V.C. out and get in contact with them. A presentation will be organized, if they think that the business has large growth potential. There are multiple Venture capitalists out there. Just because one of them says no, does not mean that all of them will say no.
The government is often “pro” new businesses. They want to help you make the most money possible, but they will also tax you a lot. They offer many business grants for those looking to start a new company. This route is not an easy route to go, but it can be well worth it if executed appropriately.
Odds that they are going to fund the new company are very slim, but they can fund a portion of it. Any little bit helps. Instead of organizing a presentation of sorts, they require some documentation, such as:
- Complete ALL application forms
- Detailed information about founders and managers
- Detailed project outline
- Detailed benefits of the projects
- ● Detailed plan with associated costs
The key components that are examined include:
Similar to any grant from the government, it may be difficult to obtain. These sort of documents should already be written out. This will help the business become successful in general. Since they are already detailed and written out, why not send them in to see what can be received.
Angel are investors are incredible and can often save the day, hence the name “angel”. They can come out of nowhere and fund a large portion of the costs that are being sought after.
Finding an angel investor is becoming easier and easier with technology. They are also creating investment groups to help mitigate the risk, as well as to have others do research. Angels can be researched online and many can be found there.
Kickstarter is an excellent example of crowdfunding. Kickstarter is perfect for seeking funds to really “kick start” a company. Here is how it works, using an example:
Sandra has a brilliant idea to create a blanket that transforms into a shirt. She does not have the funds available to mass produce them, she only has enough to create a few hundred. Sandra can create a profile on kickstarter and start the marketing. She can take pictures/videos/recordings of the blanket/shirt and publish it.
She can then establish how much she is seeking in funding. If someone wants to provide a small amount of money, it will be accepted without question. The only question the “investor” will have is what they get in return.
Kickstarter products often seek larger
investments, and when they do receive them – equity is not even in the picture.
More often than not, it will be along the lines of “$300+ is contributed, you
will receive 2 blanket/shirts plus a sticker”.
The capital may or may not be fully funded, but what is contributed can be used towards the business.
Traditional banks have small business loan programs, but frequently require a history of cash flow for the company. This may be difficult if this is a brand new company – no cash flow available to prove.
Small Business Lenders
Many people with some extra cash will often lend money to small businesses. There is often an interest rate of anywhere from 3% – 50%. It often varies on the risk of the small business, as well as the term length.
This may be the case with wealthier individuals, similar to angel investors. Small business lenders do not seek after shares of the company, they will often charge interest on the money that has been loaned.
The Small Business Administration has a plethora of programs that are loans. This will require that they be paid back within a specified term with an interest rate. While attempting to receive the loan, there must be a guarantee that the loan will be repaid.
Many successful businesses have built their company doing this. Qualtrics which has recently been sold for $8 billion was bootstrapped. This means that the company grows without external financing.
This is done by financing the company with the revenue that is received. Investing into the business, with the money from the business. This can be very rewarding because there are no other lenders or banks that will be seeking funds after a certain time frame. 100% of the business will be owned by the owner. They get to keep the whole pie to themselves, not having to give up any of it.
Short Term Sources Of Finance for Small Businesses
If your business grosses $10K or more per month, Neal Business Funding can get you a Merchant Cash Advance Business Loan. These type of loans can fund within 2 days and can be the lifeline your business needs if you have have to have a cash flow injection in to your business quickly.
You only need FOUR things to get started:
Government-issued photo ID (Drivers License).
Voided check from your business checking account.
Last three statements from your business bank account.
Last three credit card processing statements.
There are many different ways to fund a business, and the best part is there is no correct way to do it. Some options may be better than others, but it all depends on the situation at hand. Some businesses thrive on bank loans, whereas others will require to be funded by crowdfunding.
The easiest way to fund your business is to call Neal Business Funding to speak with one of our Financing Specialists. 315-699-4703