Latest posts by Mariah Bliss
- Business Funding 101: Turning Your Startup Dreams into Reality - August 17, 2018
- How to Build Word-of-Mouth Marketing Buzz for Your Business - June 28, 2018
Starting a business requires a lot of funding – and most likely, you’ll need some extra help with your startup costs. It’s important to get this step right, because it could make or break your entrepreneurial dreams. According to a recent survey, 13 percent of startups cited that it was difficult to get back on track after running out of capital.
Don’t let lack of funding stand between you and building your business. Here are some options to turn your small business dreams into reality.
Option 1: Get a small business loan
A small business loan is probably one of the most traditional ways of funding for your company. This type of loan can give you the instant equity you need to rent out office space, gather supplies and more. However, there are notable drawbacks to the small business loam. One of the biggest is that if your company doesn’t succeed, you’ll end up paying for the loan out of your own pocket.
While each bank and credit union has a different process associated with acquiring a small business loan, here’s a general overview on what you should expect:
- Identify how much you need: Create an inventory of all the supplies, employees, office space and other items you’ll need to conduct business for the first six to 12 months (or longer, if you think you won’t make a profit right away). Try to avoid taking out the maximum amount of money unless you can justify it. You will have to pay this loan back, whether through your business’s funds or your personal funds.
- Explore your options: There is no one-size-fits-all business loan, which means you should find funding that’s right for your particular needs. Research your options to see what’s available so you can be confident you’re getting the right loan.
- Find the best lender: At first glance, it may make sense to explore business loans at the bank where you have your personal accounts. However, it’s worth looking into other lenders that can give you better options for a business loan. Many banks specialize in small business loans; additionally, credit unions could be a great place to find loans with more generous repayment options.
- Get all your paperwork together: When you’re ready to apply for your business loan, make sure to have your paperwork ready, including:
- Personal application
- Resume, with business experience listed
- Business plan
- Personal credit report (your lender will usually provide this for you)
- Federal and state tax returns
- Personal bank statements
- Financial statements from your business (if you’re already doing business)
- Legal documents associated with your business
- Remain resilient: Business loans can be tough to get, especially if you’re opening up shop in a tough industry (i.e., restaurants). Don’t be discouraged if you hear “no” a few times before you get to “yes.” Use rejection as an opportunity to ask the lender why you were rejected and if there’s anything you could do differently. The feedback can turn into actionable advice for your next loan application.
When applying for a business loan, expect to answer a lot of questions like:
- Why do you need this loan?
- If you get this loan, how are you going to use the money?
- What assets and supplies are you purchasing?
- Who are the vendors you’ll be purchasing from?
- Will you use this money to hire employees?
- Do you have any business debts? If so, with whom?
- Do you have any mentors or partners who are advising your business?
If you’re ready to start the process, you can connect with small business lenders here.
Option 2: Apply for a small business grant
Like small business loans, grants are forms of funding that you can apply for but do not have to pay back. Grants can be hard to find and tough to get, but they’re definitely worth looking into.
Here are some resources that can help you start the process of applying for a small business grant:
- Grants.gov: You can search for thousands of federally funded grants meant to help small business owners launch their entrepreneurial dreams. You can find relevant grants through keywords (this could be your industry, your location, or even grants for women and minorities).
- USA.gov: This is another federal website to search for small business grants. You’ll also find advice on how to apply for the grants and a list of lenders who offer loans.
- Small Business Development Center: Each state has a Small Business Development Center, which provides low-cost training, mentoring and resources to help entrepreneurs start their own companies. Many SBDCs can even help business owners find and apply for state business grants.
Grants aren’t always the fastest way to get funding, especially if you’re applying for a competitive one. However, many entrepreneurs should consider this financial option, as it can be freeing to get a large sum of money without repayment restrictions.
Option 3: Use personal finances
Some entrepreneurs may find themselves with enough money to entirely fund their new business, or at least part of it. Using your personal finances can be an excellent way to avoid the costs associated with paying back a small business loan. Plus, you’ll have more freedom to do what you want with your money!
There are disadvantages that come with using personal finances to fund your business. The most important being there is no back up plan, whether your business succeeds or fails. If you’re using personal money to fund your business, make sure you don’t max out all your personal finances and you have enough to stay afloat during tough times.
There are many different options available to fund your business. The most important thing is to find the right type of funding for your business needs. By putting in the time and effort to research what is right for you, you’re one step closer to turning you small business dreams into reality.