How to Get Small Business Funding

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There is a difference between finding funding for a large, normal business and a small business. If you own a small shop, for example, and need some funds in order to expand or promote your business, or to improve your cash flow, then there are other options for you than there are for companies or corporations. In what follows we are going to show you some options for small business funding, so you know what to look for in case of need.

Read on if you want to learn how to get small business funding and how to avoid going after the wrong type of funding. Especially with small businesses you want to avoid the type of funding that may lead to your losing control of the business’ direction, where investors own the largest part of the business and have higher demands. Here is what may work for you:

  • Debt financing – This usually involves getting a loan from a bank, or some other financial institution. However, you can’t just go into a bank and go out with loads of cash; you need to convince the institution that you can afford the loan; you do this by presenting a comprehensive and viable business plan; your cash flow, liquidity and collateral are analyzed, and you will probably also be questioned about your financial situation, which you must know in detail. A useful tip is that you have bigger chances of getting debt financing if you have a prior relationship with the banker and the bank, and if your history within that institution is good – meaning you’ve paid your debts and interests on time and haven’t caused any problems that might make them suspicious to giving you a loan. An advantage with this type of funding is that you don’t have to give up equity (shares), but the downside is you will end up paying more than you received.
  • Grants – These can be quite easy to achieve for certain types of small businesses, but they are usually given to those who perform research, or to non-profit organizations. If you collaborate with a government agency you may also qualify for a grant; other ways to receive one is if your business is innovative, if it is community-oriented. The advantage of such small business funding is that you receive free money that you don’t have to pay back and that investors are impressed by a business with grant funding; on the downside, a grant isn’t always very large and there is also very high competition to get one.
  • Equity financing – This type of financing can work for small businesses as well; there are disadvantages however, in that you may lose control of the business if you are not careful and you end up paying your investors more than they’ve invested. Nevertheless, since we are talking about small businesses, your friends and family may be interested to help you keep your business afloat or to expand it. There are also “angel investors”, which can be privates that choose to invest in a company and have the patience to see it rise without expecting lots of money right away. Family investors usually don’t pay up more than $50,000, whereas an angel investor can offer as much as $1 million; unfortunately, they are difficult to find and they must be convinced of your future success because there is nothing much to support you. Venture capitalists are another option, but in order to reach them your business has to have a stable foundation already; you should only be thinking of going after something like that when your business is already successful and you wish to expand. You have to have a very good presentation, and usually you must promise them a fast return on their money; they will not have the patience of angel investors, and they will want to see profits soon. Finally, there are the strategic investors; these may be persons or entities which operate in the same domain as you, or in a complementary domain, and they find it strategic to invest in your business. This means they will invest in your business because they feel it may help sales or profits on their side as well, but you have to be careful because they have no interest in keeping business relations with you when they no longer consider it profitable.

Thus, if you are interested in how to get small business funding, these are your main options. Get more information on these types of funding and find out which ones are available to you. Family investors can be the best option, but you probably can’t get too much money and you risk ruining the ties in case the money is lost.

June 2022