Business Case Studies

Funding a Small Business

Perhaps you have a fantastic idea for a new business. You’ve completed your due diligence, carried out all the prerequisite preparation, and are certain that market conditions are favorable with a receptive customer base for your product. After working through various scenarios in your business model, you decide to move forward with the most advantageous strategy. However, without financial backing, the best-laid plans can stall in their tracks.

There are instances where the business may not require a significant infusion of capital. For example, the owner could be the sole employee, and there’s minimal overhead because the business is Internet-based. More often than not, small businesses tend to incur start-up costs that require financing because relatively few potential owners are in a position to fully self-fund their ventures in the beginning. Considerations like physical location, inventory, labor, equipment, and marketing have to be factored into the upfront expense. Since no revenue is generated until the business is up and running, small business owners have to borrow against future net profits to kick-start the process.

What are the options available to small business owners who don’t necessarily have a proven product or service under their belt?

Lending Companies

Some lenders cater specifically to small business owners. Companies like Dealstruck even offer tools on their website where you can research the various alternatives that are offered. You can use this calculator to determine what your monthly payment would be using different loan amounts, terms, and interest rates. Partnering with lenders that specialize in small business loans can provide additional resources and networking opportunities for owners along their journey. Establishing a relationship with a small business lender can set the stage for ongoing transactions as the business expands.

SBA

The U.S. Small Business Administration (SBA) offers attractive loan options for those that qualify. Created in 1953 as a result of the Small Business Act, its mission is to help Americans start, build, and grow businesses. Long-term loans with competitive interest rates are the trademarks of this financing, but it’s a notoriously involved application process relative to other lending products. Entrepreneurs with good credit who are comfortable wading through the details and extended time frames typically encountered during the SBA process may want to consider leveraging this government-sponsored program.

Friends and Family

For those that have the means, friends and family may also be an option, but tread carefully if you go down this road. Loaning money can strain the strongest relationship. This source of funding will typically offer the most favorable terms, but it’s important to document the specifics to protect all parties involved. In addition, interest payments are eligible for tax deductions, so ensure accurate records are kept.

With the money in reach, there’s seemingly no stopping you now. All the pieces are in place to realize your dream of owning and operating a small business. The responsibility is immense, and quite a bit of the load will be resting on your shoulders. It’s the possibility of creating something from nothing and leaving a legacy behind for your family that makes all the hard work worthwhile.