Many small businesses require adequate financing to purchase equipment, inventory, or real estate. the SBDC provides financial consulting and workshops to will help you identify possible sources of funds for your business venture. We will also assist you with loan packaging and investor presentations, including assistance in preparing your business plan and financial documents. We'll ensure that you put your best foot forward when meeting with a financier.
There are numerous factors to consider when selecting the best financing options to help you realize goals for your business. Contact your local SBDC to get assistance in determining which is the right financing vehicle for your business and direction on the best area lenders and investors.
Learn more about each of the following sources of financing:
Micro loans are smaller loans, made to eligible borrowers in amounts that range from $100 to a maximum of $25,000. They were created because traditional lending institutions have typically not made such small loans. Additionally, the lending criteria for a micro loan may not be as stringent as those established by commercial lending sources. This has made it possible for funds to be available to women, low-income and minority entrepreneurs, small business owners, and other individuals possessing the capability to operate successful businesses but lacking in areas such as perfect credit or personal assets. Loan proceeds can be used for working capital, equipment, furniture and fixtures, inventory, and leasehold improvements. The proceeds cannot be used to refinance existing debts.
Contact your local SBDC for assistance in determining if a micro loan is right for your business venture.
The kind of financing most entrepreneurs seek through commercial lenders is debt financing. When shopping for a loan, keep in mind that banks vary substantially in their lending practices. While one bank may decline your loan application, another may be willing to take a higher risk or be interested in lending. It is advisable to understand a banks lending guidelines before applying for a loan.
We generally suggest that you first talk with the bank where you have business and/or personal bank accounts. Also, keep in mind that submitting your loan package to more than one lender simultaneously can affect your overall credit score. Please feel free to contact your local SBDC to get answers or receive further information on the loan application process.
Many entrepreneurs bootstrap, meaning that a large part of business funding comes from their personal savings, home-equity loans, or credit cards. But it needs to be done carefully. If you rack up a huge debt and damage your credit rating, it'll be hard to get further funding. Another option is to raise money from relatives, colleagues and other people you know well. In addition some customers may be willing to help fund your product development if you customize it for them. As for suppliers, you may be able to convince one to hold inventory for you, as long as you guarantee them you'll pay for the material by a certain date. They may also be willing to increase your credit limit or extend your credit terms. When you're raising money for your business, it pays to be creative. Following are some additional alternatives for financing your business.
We’ve all seen the headlines: ‘Millions in free government money for your business.’ Sound too good to be true? It is. The truth is that federal and state governments do not generally provide grants for starting and expanding small businesses. Grant programs typically support non-profit organizations that provide small businesses with management, technical, or financial guidance (such as the SBDCs), intermediary lending institutions, and state and local governments.
However, if you have a technology business, you might be able to apply for a Small Business Innovation Research grant (SBIR). That’s a federally funded program mandating that certain agencies set aside part of their budgets to fund fledgling high-tech companies with interesting inventions they want to commercialize.
Factoring is the selling of a company’s accounts receivables, at a discount, to a factoring agency, which then assumes the credit risk and receives payment as the debtors settle their accounts. Factoring can provide a quick turnaround and convenient funding to growing companies who need capital to expand their business. Factoring is not a loan. There is no debt repayment, and long-term agreements are not necessary. For their services, factoring agents are paid a fee, based on a percentage of the accounts receivable.
When contemplating buying or selling a business, an important option to consider is seller financing. There are many ways to structure the seller-financed sale that make sense for both the buyer and seller. The simplest way to provide seller financing is to have the buyer make a down payment, with the seller carrying back a note or mortgage for the rest of the purchase price. The business itself, and/or the significant business assets, provide the primary collateral for the note. A lien on the property is filed, so that if the buyer defaults on the note, the seller is first in line to step back in and take over the business.
Aside from its simplicity, this type of deal can be very flexible adjustments can be made to the payment schedule, interest rate, loan period, or any other terms to reflect both the buyer’s and the seller’s financial situations.
Financing through a venture capitalist is different from borrowing from a lender because, instead of earning interest, they take an equity stake (part ownership) in the business, and it might be substantial. The advantage of equity financing is that this infusion of capital does not have to be repaid like a loan. The venture capitalist earns a profit through dividends paid to shareholders of the company and through appreciation in the value of the stock of the company.
As a condition of investing funds in a business, venture capitalists often have the right to review management decisions and, in some cases appoint their own managers to oversee certain aspects of the business. While the entrepreneur typically retains day-to-day management control of the company, the venture capitalist has some control over the strategic direction of the business. Thus, highly independent entrepreneurs must think carefully before accepting venture capital. Not only will venture capitalists be entitled to a significant portion of the profits of the company, but they also take away much of the autonomy of the entrepreneur.
Governments offer a wide-variety of loan guarantees, low-interest loans and venture capital financing programs to help entrepreneurs start and grow their businesses, including the following: