New Small Businesses Have a Variety of Financing Options
By Clint Reecer | March 1, 2014
Figuring out how a new venture will be financed is one of the most challenging tasks a new entrepreneur will face. With all of the different options that are available, it can be very complicated for a new small-business owner to figure out the best way to secure funds for a new business. Fortunately, there are many different sources of funding, as well as community resources that can help you with financing your new venture.
A common misconception is that so-called “free money” is widely available in the form of federal and state grants. The reality is that grants are typically given to non-profit organizations that then lend the funds out to small businesses as part of a larger assistance program. Unless your product or service is part of a very specific industry with direct grant funding, you are highly unlikely to be able to acquire a grant on your own. Rather than spend your time looking for money that doesn’t need to be repaid, you should focus your efforts on finding investors or loans that have flexible terms and low borrowing costs.
One of the most common sources of funding for new business ventures are commercial lenders, such as banks and loan funds. Start-up funding from traditional banks can be difficult to obtain, and often have high interest rates as a condition of repayment; an easier, low-cost alternative is to pursue a loan through a local small business assistance organization. Loans that originate from these kinds of organizations often have much better terms attached, and come bundled with valuable services like consulting and financial planning.
Many new business owners are surprised to hear that the vast majority of the money they need will have to come from their personal finances as well. Be prepared to put any penny you can spare into your business, and know that you may not recover the full amount of your investment for some time. By the same token, a new entrepreneur should also be prepared to present their business idea to family and friends as potential investors. Present your business idea to them in an open and honest way, and try to convince them that your venture is an equally sound investment for them.
Whichever financing options you choose for your venture, be prepared to show your creditors how the business will be able to pay the money back, and be sure that you borrow only what you absolutely need. Demonstrate your ability to repay the loan with complete financial statements, tax returns and a cashflow projection that illustrates how the capital infusion will increase or improve your business. By showing how you will use the money, as well as providing information about how you will be able to pay it back, you will greatly increase your chances of success when seeking financing from any source.
Remember, financing doesn’t have to be intimidating for a new business owner. Knowing what is available and being able to compare terms will always save you money; similarly, knowing what you need to bring to the table will save you the time and stress when meeting lender requirements.
By keeping your expectations realistic, shopping terms and being prepared with data, you are ensuring that your business will be financially sound no matter how you choose to fund it.
(You can also view this blog in the Rio Rancho Observer)
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