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Funding for Start-up Businesses

Written by Renee C. Quinn
B.S. Pennsylvania State University
M.B.A. University of Phoenix
Posted: November 15, 2008 @ 10:28 pm
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When you first launch your new business, you need to determine what costs your business will incur and how you will meet those expenses. This may be the most challenging task in starting a business. If you do not have the cash flow to start your business, where do you get it? The good news is that there are many sources for small businesses to consider in raising funds you need. Here are some ideas to get you started.

Funding the Business Yourself

First consider starting your business with very little funding, utilizing that which you have in your checking or savings account already. I know that sounds a bit crazy, but when first starting out, keep your overhead as low as possible. Work from home if you can, order free business cards, rubber stamps, post it notes, checks and more from, keep your inventory as low as possible and purchase only that which is necessary, and advertise through Networking where ever possible.

If you decide to fund the business yourself, and you have the funds available on credit cards, you may want to consider using them before locking yourself into a relationship with investors or lending institutions.  If you presently only have consumer credit cards, you should also consider applying for a new small business credit card from a business focused creditor like American Express so that you can effectively separate your personal and business expenses, which is important come tax time.  Be very careful with your spending though and stick to purchasing only that which is necessary to avoid maxing out your credit limit before your business becomes profitable.

Look for Small Business Incubators

Perhaps you are starting a business that requires you to have a location outside of your home, but you find that the overhead costs are out of your reach. If you are looking into office space, rather than a retail location, perhaps you should look into a small business incubator. Incubators are created to provide a place for small businesses to get started and to flourish. Unlike standard rental space, Incubators usually provide a variety of shared services such as copy machines, conference rooms, and kitchen and lavatory facilities and often have a shared receptionist area. Talk to a larger Chamber of Commerce in your area and see if this is a resource that they offer, or if not ask them to point you in the direction of where to look for one within your area. You can also do a Google search by typing in “small business incubator” and include your city and state to try an locate those closest to you.

Ask Family and Friends

Perhaps this model does not work for you as you may not have the funds, credit or time necessary. Another option you have, which I do not recommend except as a last resort, would be to appeal to friends and family. Ask those closest to you to invest in your business. Borrowing money from your friends and family is financially less risky for you, because they will probably be more flexible than banks. However the loan is more risky emotionally, because you don’t want to risk ruining your relationship in the event that your business fails. Make sure that they understand fully the risks involved in investing in a new business. Don’t overestimate your profit margin just to get them to invest. Understand yourself, the implications that could come about in the event that your business fails.

When you approach those close to you for funding, you want to treat them as you would any business partner. Show them that you have a real idea, with solid potential. Explain to them that you will using your own credit cards, savings, etc but need their help beyond that. Show them your business plan, including your sales and marketing strategies, realistic income projections, profit and loss statements (if the business is already running) and other relevant details. In the event that someone does invest in your business, be sure to treat these relationships as you would any business relationship by creating the proper documentation that protects both you and them in taking on such an endeavor.

Secure Business Loans or Investors

I mentioned above that you should share your business plan with your family and friends if you plan to ask them to help you with funding. Although it is not necessary with “warm” funding sources such as friends and family, it is however, mandatory for securing most bank loans and some outside investors. Be prepared however, for a long lasting, professional relationship with legal responsibilities. Make sure you are aware of all the rules, regulations and small print of everything and anything you sign.

An excellent resource for funding small business is the US Chamber of Commerce. The U.S. Chamber of Commerce features a Finance Toolkit and a Start-up Toolkit on their website where small businesses can go to learn how to make sense of and prepare for what their financial needs are. They also have a Chamber Directory Search Page available on their website where you can locate the local Chamber of Commerce in your area.

Many larger Chambers also provide an Economic Development program for small businesses. You should contact your local Chamber to see if they have an Economic Financing or Business Development Department that offers small businesses the opportunity to partake in funding programs usually targeted to business start-ups and expanding local businesses. Many larger Chambers also have access to an Angel Network, which is a list of local investors, looking for new business ventures to invest in. Once again, you could also you can also do a Google search by typing in “Angel Networks” and include your city and state to try and locate those closest to you.

The United States Department of Commerce has developed an Economic Development Administration within their organization. The EDA provides current information on their federal programs, investment policies and funding opportunities available to small businesses. They also provide easy access to laws and regulations that apply to EDA’s Programs, and guidance for those who may be interested in applying for EDA’s assistance opportunities. To assist you in locating opportunities within your own geographical area, the EDA provides an Economic Development Directory on its website, where you are furnished you with a comprehensive list of additional resources available to your small business by the state within which your business resides.

No matter which route you choose to take in order to fund your business, you will need to do a lot of research and seriously think out your business from start to finish. Although Business Plans are not mandatory for securing all forms of financing, I highly recommend that you take the time to create one. By doing so, you will have the best idea of what your business will need to survive and grow. You may discover that you need more or even less funding than you had originally anticipated. Be sure to utilize the resources that are available to you.