There are many options for a small business financing, but knowing which one is right for you and your future is a crapshoot. There are many things to consider when looking for financing and knowing what is available will help level the playing field.
Debt Financing
Most small businesses get funding through financial institutions for debt financing. Depending on your credit, the cash flow of your business, the liquidity of the assets and your collateral, a bank or other financial institution can give a loan and set you up with monthly payment agreements. Your business plan must be sound and you must be familiar with the financial side of your business.
Pros
- No equity to relinquish
- Good for those who have no equity for funding
Cons
- Interest must be paid on the loan
- Collateral may be required to cover loan
Grants
If your small business is centered on technology, a grant from the Small Business Innovation Research Program (SBIR) may be for you. Also available are regional, minority, and state grants. The Cooperative Research and Development Agreement (CRADA) will help augment your assets and do research economically. The agencies were created to help small businesses and overlooking billions in grant money is not a smart thing to do.
Pros
- The money is free
- Investors are enamored of the control that grants offer
Cons
- A lot of competition looking at grant money
- Strict requirements on how the money is spent
Friends & Family
An alternative to debt financing is asking family or friends for help starting your business. They may be able to help run the business as a family organization or just provide a loan. Just as there are risks in starting any business, so are there risks with loans from family or friends. Keep the loans to a business nature, and keep them in the loop at all times. It is one thing to lose a small business, quite another to lose a family member.
Pros
- Opportune, no long legal contracts
- Few strings attached
- Quick money
Cons
- Funding is usually limited to one loan
- A family falling out could occur if the money is lost
Private Investors
Private investors fund 30,000 small businesses in the U.S. each year and are usually happy to provide guidance and their business acumen in addition to their money. They normally invest in groups with each one getting a piece of the profit.
Pros
- In addition to money, they bring business knowledge and prospects of networking
- Fairly tolerant about their cash outlays
Cons
- Can be hard to find
- May be difficult to manage the differing concerns of a group of private investors
Taking a chance in life is what we all do at one time or another and taking a chance on the different start up financing available is a sometimes risky. Knowing where your company is and where you see it going will help make the right decision when looking for your small business financing.
