Without capital, a business venture is unlikely to be possible. Those who envision owning a small business need capital available to manage setup costs, buy equipment, hire staff, and more. To be a successful business owner, you’re going to need to know how to acquire the financing you need in the early days. This small business financing guide can help start you on the path to funding success.
If you’ve gone through all the important steps to establish a business like putting together a business plan and renting a facility, you still need to know where to find a source of working capital to keep you going until your new small business turns a profit. Fortunately, new business owners often have several options to consider for getting the financing they need.
The following are a few important steps that you’re going to need to go through to find financing for your business:
Figure out how much capital you’re going to need to get going
As part of devising your business plan, you need to calculate the amount of money you’ll need to get started. This means you’ll need to add together all the expenses you foresee including the costs of acquiring equipment, hiring professional help, finding a facility, etc. You’ll also want to factor in your own living expenses for the time until you start bringing in profits from your business.
It’s important that you don’t overlook any expenses that are going to come up when you make your calculations. Overlooking an expense could mean that you will be unable to continue with your business venture even after you’ve already invested money into it. Make sure that your business plan is thorough enough to account for any incidental expenses that could come up in the early days of your business’s operation.
Consider the funds you have available
Hopefully, you’ve already got some funds in savings that you can use if you are intending to start up a business. Self-funding or bootstrapping means you put your own financial resources toward your business start-up costs. Not only can you use your own personal funds for bootstrapping, but you might also be able to rely on funds from family, friends, or business partners to start up your business. A personal term loan may be another option to consider.
While it’s great if you can self-fund, you need to be careful of not risking too much of your personal funds on your business. Don’t spend more than you can afford or you might have trouble with living expenses in the near future.
Evaluating your different options for acquiring funding from others
There are quite a few options out there for acquiring capital funds through other entities. Some of your main options including venture capital funding, crowdfunding, small business loans, and Small Business Administration investment programs.
With venture capital, you would track down investors who are interested in your company and who feel that investing in your business venture is likely to be profitable. One thing you need to know if you deal with a venture capitalist is that the venture capitalist will likely expect to have an ownership role in your company in exchange for financing it.
Crowdfunding involves spreading the word about your company to a large number of people who might be willing to freely contribute funds to your venture. Crowdfunding is a good option if your business idea is going to enjoy mass appeal and many people are likely to take an interest in your company offerings.
You could also consider applying for a regular small business bank loan. While this is in many cases a convenient option, you’re going to need a strong credit history in order to have a chance of being approved.
The Small Business Administration offers some programs that are ideal for prospective business owners in need of capital. The SBA backs some loans to small business owners and also runs The Small Business Investment Company and the Small Business Innovation Research program. These programs are particularly helpful for new business owners who will be working in federal innovation research and development.
Apply for loans and make arrangements for other funding possibilities
Those starting small businesses should evaluate all the options mentioned above and determine which is best for their own particular situation. It’s important to realize that the sooner you get started in pursuing your capital source of choice, the sooner your business can take off.
The process for applying for a business loan or setting up a crowdfunding initiative can take a while. You’re going to need to meet with investors, lenders, or others and present your case. When you’re applying for various forms of financing, having a well developed business plan is essential.
Lenders and investors are going to want to see that you have carefully laid out your plan. They’re going to determine whether or not to provide you with funding depending on how profitable your plan seems. Therefore, you need to make a strong argument for how your company is going to be profitable and benefit its customers.
Business credit cards
One of the first things you should do when starting a business is to open a business checking account so that you can keep your personal finances separate from those of the business. Similarly, you should consider getting a business credit card. Your ability to get approved may depend on your personal credit score, especially at first, but a credit card can be important for helping out with those lulls in cash flow. (Just make sure not to become too dependent on it!)
Successfully acquiring capital is generally one of the most difficult steps of starting up a small business. However, those who are persistent and resourceful can succeed in funding their company through one or several of the financing options available.
At Flex Capital, we help small business owners acquire the working capital and property they need with loan programs, invoice factoring, real estate loans and more. Contact us today for a quote!