Small Business Startup Financing

Acquiring small business startup financing can be one of the greatest challenges facing hopeful entrepreneurs. The beginning phases of any new commercial venture can be the riskiest. Many lenders do not wish to take on the extra risk of getting a new company going. Funding can come from a variety of sources, but will most often come from an owner's personal savings. A solid business plan and persistent approach can sometimes entice traditional lenders to approve a loan. Borrowing from relatives and friends is another popular method of gaining small business startup financing. Other funding sources might be individual investors, loans that are guaranteed by the government, or venture capital firms. When an entrepreneur furnishes their own cash, they can choose from a variety of potential sources. Savings accounts might provide enough startup cash to get things rolling. Home equity loans or lines of credit might also be available. Selling or borrowing against personal assets is another approach that could work. When an owner contributes his own money, he can do so in one of two ways. He can consider the funding as a purchase of equity in the company, or he can offer the funds as a loan. Family and friends may be willing to supply funds in the same way, by purchasing a stake in the company or as a loan.

When an entrepreneur supplies his own small business startup financing, it is often referred to as bootstrap financing. A major benefit of this approach is that the worth of the company will be higher from the very beginning since debt is held to a minimum. Significant savings in interest payments are another benefit since the entrepreneur does not have to take out a loan. If additional funds are needed, lenders might be more inclined to approve loans since the owner has enough faith in the organization to put his own money on the line. Potential investors might be more willing to contribute funding for the same reason. If a new venture receives an order from a customer, that customer can also be an aide in getting funding. If the customer will provide a letter of credit to the company, that letter can translate into security for credit with suppliers. Creative use of real estate can be another source of bootstrap financing. Leasing a facility rather than purchasing one is an example of this approach since it will reduce the amount of startup cash that is needed. Borrowing against the equity in an entrepreneur's personal home can also supply needed small business startup financing. Sound financial management can work to the advantage of a new commercial venture. By cutting back on the money needed to get things rolling, companies are, in effect, gaining a needed financial foothold without borrowing funds.

Government insured funding in the form of Small Business Association, or SBA loans can be another good source of small business startup financing. These funds are guaranteed by the United States government and are generally offered by traditional lending institutions. There are a variety of lending programs that come under this heading. These could include 7(a) loans, 504 loans, or micro loans. The attraction of these loans for lenders is that even a partial guarantee removes a good deal of the risk. Within the category of 7(a) loans are a variety of lending programs including the Lowdoc program, and the SBA Express program. A 504 loan will generally be used toward needed business assets. These assets could include equipment, land or real estate. Most programs are generally only available to companies that meet certain size restrictions. In addition to these programs, there are many other SBA loans that can provide small business startup financing. Another way to save money when launching a new commercial venture is to lease items such as office furnishings, computers, copiers and other office equipment, manufacturing machinery, phone systems or even company cars. Venture capital firms might also be willing to provide needed funds. These firms will only come on board if they believe that the new company has great potential for growth and profit.

Credit cards can be another source of small business startup financing. While interest rates may be higher with this approach, an entrepreneur may find that borrowing in this manner can be both quick and easy. The danger of using credit cards, particularly the personal credit cards of a business owner, is that if the company has a slow period and payments can't be met, an owner's personal credit rating could be hurt. However, when a company's borrowing options are limited, credit cards or commercial lines of credit may be the only available option. An entrepreneur should always keep in mind that accumulating a large amount of credit card debt can be a risky approach when launching a new venture. Acquiring partners who can help shoulder this burden and share the risk might make the difference between the success and failure of a startup company.

Many entrepreneurs turn to family and friends for needed small business startup financing. Some family members may be willing to extend a loan to a trustworthy loved one, or may even be willing to invest in the venture themselves. Having friends and family to lean on can be a real blessing. The Bible describes the great blessing of turning to God in times of trouble. "Hide not thy face from me in the day when I am in trouble; incline thine ear unto me: in the day when I call answer me speedily." (Psalm 102:2)