Despite the slow economic growth over the past few months, entrepreneurs still have
plenty of ways to raise capital for their new business ventures. There are now more
than 20 sources of funding available
to entrepreneurs, including internet funding sources. However, it is still the traditional
sources that fund the majority of new businesses.
The SBA
The Small Business Administration is one of the largest sources of business capital
for a small company. Their primary goal is to encourage the economy of the United
States by providing a wealth of resources for small business owners. Though they
do not directly provide funding to any
small business, they do work in collaboration with local banks that make
small business funding possible.
The advantage of applying for this type of funding is its quick approval process.
Prospective borrowers are often notified of their loan status within 36 hours of
applying for an SBA loan.
Bank loans
Community banks are also great sources of small business capital. Some decisive
measures for bank loan consideration are the borrowerâs credit history, collateral
to secure the loan, financial prospects, and a well-devised business plan. The advantage
of approaching a bank for a small business loan is that an
entrepreneur may have
a good chance of obtaining capital if they have established a good relationship
with a bank and/or its lenders in the past.
Microloans (microcredit)
For those applicants who do not have stellar credit or collateral to secure traditional
commercial bank loans, microloans may be an option to consider. Banks and other
financial institutions often provide small lines of credit (microcredit) to individuals
who do not meet the standard requirements of traditional banks since they are considered
poor entrepreneurs who are not âbankable.â While microloans may not cover all startup
costs, it still provides a great source of partial funding for new business ventures.
Microloans typically range in size from hundreds of dollars to the low six figures.
In fact, over the past few years, more entrepreneurs are turning to micro loans
as a source of funding.
Venture leasing
Venture leasing, a trend that has been around for the past decade, has become increasingly
popular among fast-growth companies. This source of
business capital is generally
available to entrepreneurs who have already been granted institutional funds for
their startup. When an entrepreneur decides to use venture leasing, s/he is simply
financing startup equipment and other technologies from equipment leasing firms
owned by
venture capitalists. Venture leasing is not a cheap alternative for financing.
Deals typically require payments of 100% of the principal, plus 8 to 12% in interest
over a 24-month to 60-month lease horizon.
Credit cards
Credit cards have always been the mainstay of the
small business owner. A lot more
entrepreneurs are relying on their credit cards to finance their new businesses.
Credit card amounts cannot simply provide the funding required for most startups;
however, multiple sources of funding, including credit cards, can accomplish this
goal. There is a lot of risk involved when using credit cards as the main source
of funding since interest rates are high and non-payment can lead to poor credit
or no credit. Before applying for a credit card, the
entrepreneur needs to make
sure they know the interest rates, monthly payment plans, confidentiality agreement
as well as additional fees that may be added.
Friends and family
Finally, family members and friends are great sources for obtaining capital for
a new business. Often times, they are enthusiastic about an
entrepreneur’s new venture
and can give money immediately without the high interest rates of more traditional
lenders. One problem with the informal borrowing of money is that it can lead to
relationship conflicts. In order to prevent such events from occurring, the
entrepreneur
needs to set rules with family and friends whom s/he has borrowed from and vow to
pay back all owed debt as soon as possible.
Conclusion
There are many ways in which an
entrepreneur can go about finding the money needed
for his/her new business. They can apply for SBA loan programs, obtain a commercial
small business bank loan, or if they do not have solid credit, can opt for microloans.
To obtain equipment and technologies for their new company, they can resort to leasing
their equipment from
venture capitalist leasing firms. They can also boot strap
their finances as a way to raise capital by using their credit cards as a source
of funding. Business owners can also ask for financial support from family and friends,
who are often willing to help out a loved one.