Funding options for a small business

The biggest obstacle a new business usually faces is how to pay for the expenditures to get a start-up off the ground. A common mistake is using one's personal finances, either from savings or credit, to get the ball rolling. Using your own funds to start a business is acceptable if you can swing. Carefully consider how to pay for basic living necessities if you tap your own reserve. Creating a mountain of personal debt while waiting for your business to generate revenue can quickly sink the most solid of plans.

The small business sector has been in a continual pattern of growth for some time. Many say the small business is the most important thread in the fabric that is our economy. Funding options have become diverse and plentiful. The key aspect to securing funding is the possession of a rock-solid business plan. The plan will be your roadmap, your direction to success.

The Small Business Administration (sba.gov) should be the first stop for a business owner when financing is needed. The SBA doesn’t offer loans directly but they do act as guarantor for loans made by institutions and individuals. The SBA has a wide and diverse network of lending partners. Understanding loan eligibility is made simple via the SBA website and will help determine how likely you are to qualify for a loan before you even apply.

Grants create buzz among business owners. In reality, grants aren’t as widely available as people think. If you are fortunate enough to find a grant, the use of funds is usually very specific: usually limited to research, non-profit, and government and education sectors. It certainly doesn’t mean you shouldn’t try for a grant, just be reasonable with your expectations. Think of it as a nice surprise and never a reliable source of funding. The process to obtain a grant can be lengthy and tedious and often requires the assistance of a seasoned grant writer. The competition is usually fierce. If you are fortunate enough to win grant money, the funds often take an extended period of time to land in your hands.

Equity financing can be another avenue to obtain funding. Essentially one business is raising money in return for a stake in ownership in another business. Commonly this is done via an angel or venture capital firm. This option carries a considerable amount of risk for both parties. Equity financing, at the very least, will require the investor to have a seat on the board of directors. Seek a highly qualified attorney when entering into an equity finance agreement.

Get creative when you look for financing. As the small business evolves, the lending industry as a whole must follow suit. For example, Prosper.com is revolutionizing the way we borrow money for both personal and business use. Prosper allows the user to create a free and secure account, set the loan amount and terms, and let people place bids on winning the loan.


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