4 Easy Ways to Fund a Small Business

(doylc.com) How to Fund a Small Business - Finances are crucial for a small business. Without sufficient seed capital, you won't be able to pay for your business license, buy equipment, or hire employees. Fortunately, funding is available from many different sources. You could get a loan from a bank or top up your savings. You could also use a credit card or seek funding from investors.

• Receiving a loan

Create a business plan . Most banks will want to see a business plan. A business plan is an outline of your goals and your plans to achieve those goals. Your plan should include the following sections:

Summary. Summarize your business and describe what you want - financing.

Description of your company. Briefly describe your industry and identify any new developments that will impact your business.

Marketing. Analyze your market and identify a target market.

Competitive analysis. Identify the strengths and weaknesses of your competitors, as well as strategies that will give you an edge.

development plan. If you are developing a product, then describe the different stages and where you are in its development. Also create a development budget.

Management and Operations. Identify the key players in the business, such as the management team, and their tasks in the business.

Expected Use of Funds. Include a description of how the financing will be used. For example, you should detail your organizational expenses, working capital, equipment purchases, etc.

financial analysis. You should include financial statements for the company. Also add a funding request. Remember not to underestimate the amount needed. If you do this, you might run into problems later when you run out of money. Also, be careful not to overestimate. If you need to purchase equipment or inventory, get estimates from suppliers.

Identify the type of loan you need. Depending on your needs and usage, there are different types of loans to choose from, including revolving loans, term loans, or installment payments. If you need more than one type of loan, apply for several. Consider the following types:

working capital loan. Working capital loans are typically AR and inventory loans that remain in place under the terms of the contract, even if the amounts of each loan vary based on AR and inventory levels.

equipment rental. You can take out a loan to buy or lease office equipment, as well as vehicles, machines, or tools.

lines of credit. These loans are like working capital loans and provide money for daily cash flow. They may have short repayment periods, e.g. B. 90 days. With a credit line, you only use the money you need and only pay interest on that amount. For example, a bank might extend a $10,000 line of credit. You can borrow $2,500 and pay interest on that amount.

Identify collateral to secure the loan. Collateral provides the bank with protection in the event you default. If you are unable to make the payment, the bank may foreclose on the assets used as collateral. If you don't have business assets, you'll need to pledge personal assets like your home.

If you are looking for a loan to buy equipment, then you will probably secure the loan with the equipment itself. The same applies to real estate.

Gather the typical documents required for a loan. You must provide extensive financial information to the bank. Talk to the loan officer in advance so you can get what you need. Depending on your bank, you may need to provide:

Copy of your business plan.

Accounts Receivable and Accounts Payable information. Provide sales and payment history and credit references.

Audited or audited financial statements.

insurance information.

Your personal financial information. The bank wants to see information about your personal assets and liabilities, including investments. If your business has multiple owners, personal financial information is required from all major owners.

Previous Tax Returns.

Analyze your creditworthiness. Getting a business loan is not easy. To be competitive you need a credit score of over 650 and preferably over 700. The bank will also need to look at your credit history and confirm that you have current credit.

Before applying, you should pull your credit report and check for errors. Remember to look at both your personal credit history and your company's credit history.

If you find errors, you can contact the credit agency that reported the error. You can usually report bugs online or by letter. The agency should get back to you within 45 to 60 days.

Apply for the loan. Gather all the necessary information and go to the bank to apply. Before you sign on the dotted line, you should check the details of the loan like repayment period and interest rate. If the details are acceptable, complete the credit package application.

You usually have to wait two to four weeks before you get a response from the bank.

Contact banks for loans. You can contact any commercial bank and ask for a business loan. However, you might be more successful if you contact local banks or credit unions. As a small business, you probably aren't a good risk for large national banks unless you have a history of successful businesses behind you.

Contact any banks or credit unions you do business with. Tell them you are looking for a business loan and ask them about the process.

You can also ask other small business owners where they got credit. If they recommend a bank, call the bank and ask to speak to a loan officer.

Consider an SBA loan. The US Small Business Administration guarantees small business loans. You still apply for the loan from a bank, but the SBA guarantees payment of the loan if you default. You must provide much of the same information for an SBA loan as for a regular bank loan.

The SBA offers different types of loans. For example, the 7(a) loan program offers flexible loans that you can use for working capital or to purchase equipment or real estate. The term of the loan is 10 years for working capital and 25 years for fixed assets. You can borrow a maximum of $5 million.

Microcredits are also possible. The average microloan is $13,000 but can go as high as $50,000. You can use these loans for anything except paying off current debts or buying real estate.

There are also special loans for disaster recovery and for real estate and equipment purchases.

Research online loans. Online lending is a booming industry. You can apply for your loan quickly and will receive a decision within a few days. Online loans are ideal if you haven't qualified for an SBA loan or if you need the money quickly. You can find lenders by searching the internet. Some of the most popular lenders are Kabbage, Prosper, Fundbox, and BlueVine.

In order to get a loan, your business probably needs to be at least a year old. Younger companies should use other financing options.

Thoroughly research interest rates, fees, and repayment times. For example, some online lenders can charge up to 29.99% annual interest and have repayment terms from 12 weeks to several years.

Also watch out for scams. A reputable lender should have an address and phone number listed on their website. Also, avoid loans that have insurance fees upfront before you receive your loan.

Ask friends and family. Asking people you know for a loan can feel awkward. However, you can agree to pay interest and create a loan agreement that makes it official. Sometimes borrowing from friends or family is the best option, especially if you don't qualify for a bank loan.

Make timely loan payments. Regardless of which loan you get, you should make payments on time. Pay the amount due in full before the deadline to avoid late fees or penalties.

Contact a business or bankruptcy attorney if you think your business is going under. They can advise you on your options.

Don't keep building up debt. If you find yourself taking on new debt to cover old debt, consider closing the deal.

• Tap on personal finances

Use your savings. You should avoid using your savings, especially if you have earmarked that money for your retirement or your children's education. However, you can always return this money to your savings account later.

If you use personal savings, remember not to empty your savings accounts. Instead, try to leave at least $5,000 in the bank.

Consider a home equity loan. You can usually obtain equity by taking out a loan either in one sum or as a line of credit. In general, you can get 75-80% of the home's value minus your mortgage amount. If your home is worth $300,000, you may qualify for $240,000. Subtract the remaining $150,000 of your mortgage and you qualify for a $90,000 home equity loan.

Home equity loans are not risk free. For example, the bank might mortgage your home if you default on payments.

In a strong economy with low interest rates, it's usually better to tap into home equity. When the economy falters, your home is likely to lose value.

Withdraw money from a retirement account. You can fund a business by starting a C corporation with a retirement plan. You then transfer money from your retirement account to the company's retirement plan.

As this is legally complicated, you must use someone experienced in this type of transaction. If you do it correctly, you do not owe any prepayment penalties for the extension of your retirement assets.

Consider the risks. If your business fails, your retirement account is gone. You won't get the money back.

• How to fund a small business using a credit card

Get a business credit card. You should receive a card in the name of your company. Shop around and compare interest rates, annual fees, and rewards programs. Also ask what business products the issuer might offer. When applying, you must provide the following information:

your company name

years you've been in business

name you would like on the card

business contact information

number of employees

industry and profession

annual sales

Sign a personal guarantee. Although the credit card is in your company name, the issuer will likely ask you to sign a personal guarantee. With this guarantee, you legally promise to pay the debt if your company cannot.

Think carefully before using a credit card to fund your business. If you can't make payments, your personal credit will suffer.

Only use the card for business purchases. You should keep personal and business purchases separate. This makes it easier to keep track of business purchases. You could also get into legal trouble if you mix your personal and business assets.

You may have a corporation or an LLC. This shields you from personal liability for your business debts. However, if you mix personal and business funds, a judge could determine that your business is a sham entity. Consequently, you become responsible for your business debt.

Transfer balance to a second card. You basically get an interest-free loan when you take out a second credit card. Issuers often offer a low introductory interest rate, e.g. B. 0% interest for 12-18 months. You can then transfer the balance from your first card to your second card. You have a year or more to pay off the debt.

Make payments on time. You should always pay off your balance in full at the end of the interest-free period. By cashing out your balance, you save money and build your credit score.

If you accrue interest, you can deduct the interest from your taxes at the end of the year.

• Find other sources of income

Research Angel Investors. These investors invest in startups or newer companies. In return, they receive a 20-25% increase on their investment. Angel investors typically invest around $600,000.

Angel Investing is ideal for a fledgling (but not new) business that needs a cash injection to develop a new product or service.

You can find angel investment groups by visiting the Angel Capital Association website, which maintains a list of angel group members. You can also check out MicroVentures and AngelList.

Find venture capitalists. Venture Capital is very similar to Angel Investors. These companies invest in high-risk companies with growth potential. You can find venture capital firms online. They tend to only invest in certain types of companies, so research them thoroughly before contacting them.

Thefunded.com website contains information on various venture capital companies. The information is provided by entrepreneurs who have worked with them.

Consider crowdfunding. The Indiegogo and Kickstarter websites allow you to seek small investments from many people online. You create a profile and then set a fundraising goal, e.g. B. $5,000 over 30 days.

Crowdfunding is not suitable as a long-term financing method. Instead, it's good for one-time business ventures, like funding the creation of a film or music video.

Opportunities for research funding. Government grants are available for specific industries, such as those focused on research or science. The SBA runs several scholarship programs, including the following:

Small Business Innovation Research (SBIR). To qualify for this grant, your business must have no more than 500 employees and must be majority-owned by one or more US citizens or resident aliens.

Small Business Technology Transfer (STTR). This program has similar requirements as SBIR. However, the company that receives the grant is a partner in a non-profit research organization that receives at least 30% of the funding.