Finding financing to start up your small business is a key hurdle that many first time small business people find difficulty in negotiating. However, there are ample financing opportunities for would-be entrepreneurs out there, it’s just a matter of knowing where to look and how to ask.
The first step you need to take in acquiring capital for a small business is to write a business plan. A business plan is a document that outlines the basis and the mission of your business and how you expect to launch it and help it grow in the current economic environment. Business plans help lenders assess the viability of your business and the competence of its management, so having a solid business plan is important. A good business plan should have an executive summary, market and industry analysis, operational overview and financial segment that gives estimates of how the business means to move forward to profitability.
Many small businesses are launched with investments from family, friends and partners. A key advantage of this arrangement is that the money can often be raised with a minimum of paperwork, but the amount of money available in these arrangements is often limited. Also, it can cause strains in friendships and family relationships, particularly if the business fails to prosper.
Banks and other lenders are an important source of capital for small businesses. When borrowing from a bank or financial institution, you typically must put up collateral and also convince loan officers that you and your business are good credit risks.
If you have difficulty in getting a loan from a bank, or if the interest rates the bank wants to charge you for a loan are exorbitant, consider doing business with a credit union. Credit unions are designed to provide members with low-interest loans, particularly for personal needs like mortgages, car loans and small business startup capital.
The Small Business Administration makes a variety of loans available to people who want to start a business. The SBA typically makes these types of loans available:
7a loans are typically loans made through banks and other lending institutions to small businesses with special needs, such as export businesses or businesses that work in rural areas or other highly specialized purposes. For example, some 7a loans are available to entrepreneurs who want to start businesses in underserved or undeveloped areas.
The SBA’s microloan program makes small loans (less than $50,000) to businesses to buy equipment, material or machinery. The loans may also be made to daycare centers. The average microloan is for $13,500.
The SBA’s CDC/504 loan program typically awards loans to businesses to buy equipment or facilities. The loans are intended to develop communities and larger amounts can be borrowed by businesses meeting certain policy goals such as hiring minorities and women or business district revitalization.
Perhaps the best way of finding out about the small business loans available to you is to contact the Small Business Administration. This government agency can help you determine if you’re eligible for any government-sponsored small business loans or other programs to help you acquire capital.