Small Business Deep-Dive #3: Funding Field Guide for Success

Small Business Deep-Dive #3: Funding Field Guide for Success

Money. Is it the root of all evil? Not sure...this isn’t a philosophy blog it the root of your small business? Oh yes.  

Hey small business entrepreneur! You’ve completed your market research. You’ve written a killer business plan. Now you’re primed and ready to secure funding and make your dreams a reality.   

That’s right: money makes the world go around. Because without it, that genius idea of yours is going to stay right where it started. In your mind.   

Whether this topic makes you nod with confidence or sweat bullets, you need to know your options. Understanding startup financing and the various processes involved means you’ll be able to choose the right path to fund your genius business idea.  

The third blog in our small business deep-dive is all about funding. Read on to learn where you’ll get that crucial start-up money and exactly what you’ll need to make it happen.   

Where do I start finding funding for my small business?  

First things first. Sit down and calculate your start-up costs to know how much money you’ll need. Otherwise, you might miss the mark when asking for it.    

Calculating your initial costs means tabulating expenses like rent, utilities, and inventory. An organized document of estimated expenses will also be necessary when courting loans or investors, so be thoughtful and thorough!  

What are my best options for retaining creative control?   

You know how much you need. Now it’s time to talk about options.   

Self-funding is a common way to finance a new business. This means tapping into your personal resources.   

Upside? You retain complete control of your company. Downside? Personal financial risk is real. More upside? Self-funding makes you look good to future investors. People trust an entrepreneur who puts their own money where their mouth is.  

So how do you self-fund? Obviously, there’s your personal bank account. But before you make that transfer, establish a plan to pay yourself back. While you’re at it, make note of it in your business records. Your accountant will love you.   

If your savings account is not quite robust enough to fund an entirely new businessconsider a personal or small business credit card to supplement. You can also consider taking out a home equity loan. Just keep an eye on those interest rates.  

Retirement funds are another way to rustle up money. Some 401ks and IRAs will let you take out a loan to start a small business. The IRS allows loans of up to 50% of your vested balance with a $50,000 cap. Not all plans offer this option, so double check before banking it.  

Not quite sold on throwing your entire life savings into this business?   

What’s the deal with venture capital?  

Do you play well with others? Are you good at sharing? If your answer is “yes,” then consider investors.   

Venture capital funding means you’ll be asking investors for money in return for equity. Investors can be individuals or firms. This type of investor is interested in high growth potential and isn't afraid of risk. Oh, and they mean business. These folks aren’t just giving you a loan: they’re buying a piece of your pie which gives them a vote in what you do with your business — for about four to six years.   

If equity for seed money sounds like a fair trade, look sharp. Woo an interested investor with your killer business plan and financial statements. They will then perform due diligence before agreeing to investment and equity terms.   

Bonus option: crowdfunding via platforms like Indiegogo or GoFundMe. Sure, crowdfunding isn’t “investing.” But it’s other people’s money. Crowdfunding harnesses the power of the internet to receive monetary donations from individuals. Usually in exchange for a “gift” or reward. It’s great if you need money ASAP, but isn't sustainable for long-term funding.   

Is a small business loan my best bet?   

Hey there, Goldilocks. Self-funding too risky? Investors too controlling? A loan may be just right for your entrepreneurial needs.  

Loans let you secure funding without relinquishing equity or personal assets. They can be the perfect finance option if you don’t have the means to start your business yourself.   

Loans are usually provided by banks or credit unions. You’ll apply for a loan for a certain amount of money that you will then pay back under specified terms. The drawback here is interest rates. And if you’re having cash flow problems you might fall behind on payments.   

To get a loan, you’ll need to provide proof that your business idea is legit. That’s right, another starring role for your business plan and financial statements. Need help nailing those documents? Check out this post on preparing for a small business loan.   

Heads up: new businesses might have a hard time qualifying for a loan. No credit history makes you look risky. Luckily, the U.S. Small Business Administration is a great resource for finding loans specifically for new small businesses. Plus they offer resources for investment programs.   

Is there such a thing as free money?  

Does no-strings-attached funding exist? The kind you don’t have to pay back?  

The final funding option worth mentioning is grant money. Some government, private, and nonprofit organizations offer funding to businesses that align with their values. Applying for grants is time-consuming. Plus there’s no guarantee you’ll get it. But if you do, it’s all yours.   

Grants are often designed to help forward an initiative, such as supporting female business owners. They are awarded to a business that exemplifies a certain value or principle. You’ll need to demonstrate your alignment with the granting entity’s vision.   

Time to get familiar with grant writing! Once you’ve identified a grant you’re interested in, request an application. Grant writing means building a detailed and compelling argument to secure funding.   

Which funding option is best for my small business?  

You’ll most likely use a combination of the above to get the ball rolling. After all, your business is as unique in its requirements as it is in its offerings.   

So what does it boil down to? Do you want to accrue debt or hand over control? Do you have a business proposition that’s going to interest investors? Do you have the time and inclination to apply for grants? With a smart strategy and vision, you can make funding work for you.  

See you in the new year for Part Four: Choosing a Location!   

Weighing your small business funding options can be tough. A trusty accountant can help make things easier. Reach out to KYN for insight on funding options today.  

Have you found small business funding options other than those mentioned above? Let us know below! 

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