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MyOwnBusiness Institute

Sources of Funding for Small Businesses

Don't know how you are going to fund your small business? Emma J. Gonzalez, Deputy Director of Silicon Valley Hispanic Satellite, explores the different sources of funding for small businesses. 

Most small business owners and entrepreneurs will find they need financial resources at some point to start or grow their business. It is important to make sure that you have done your homework before you make any financial commitments to a lender. From our experience, it is best to identify what your financial needs are before seeking funding, be able to clearly articulate what you need the money for, how much do you need, and how are you planning on paying it back, and what is your personal financial investment? Remember lenders want to make sure that you are committed and have some "skin in the game."
To be able to answer those questions you will need to have a business plan. I know that might sound a bit intimidating, but there are several versions available, and I encourage you to seek guidance and support to find the right plan for you. I recommend that you take a look at the business plan templates on MOBI's website. Sure, your business plan will need to contain some market research and projections, but telling your story, sharing your passion about why your business is or will be successful is equally if not more important.
You've determined how much you need, you've told your story, now what? There are several options available to support small business financing. There are traditional banks, community banks and credit unions. But, for start-up businesses or those in business less than two years, our greatest success has been with non traditional lenders. Some examples of non-traditional lenders are: crowdfunding, micro-lenders, community development loan funds, venture capital or angel investors, or self funding through retirement or home equity. Of course, there's always friends and family. So let us quickly explore how to determine which funding source is best for you.
Crowdfunding is a great way for a new business to get started. It may take some time and you must tell your story to a group of community supporters. Many crowdfunding sites charge zero to minimal interest. Micro-lenders and community development loan funds. A few examples of these organizations are Opportunity Fund and Working Solutions. These organizations are usually more lenient with borrowers with less-than-perfect credit. They will also entertain some startup funding. Interest maybe a bit higher, since the risk is greater for the lender.
Venture capital or angel investors are sometimes willing to fund your business and support your efforts to be able to bring it to market, but they may also want equity or even management control over your business. Self-funding or using friends and family may sometimes be your best option when starting out. You can draft a loan note to yourself or family member from your business. This is a great way to start building credit for your business. But, most importantly before you make any small business lending decisions make sure you do your homework and seek out professionals who are experienced and willing to offer guidance and support to you for a little to no cost.