6 ways to finance your small business

Finding money can be one of the biggest hurdles for a small business owner. Whether you want to open a restaurant chain or an internet-only business, capital is required to fund your dreams. Here we will explore the different types of financing available to you:

Financial debt includes the money you will pay. It does not require you to give up your company shares and can be a good option for entrepreneurs who have failed to attract the attention of investors. This type of financing generally requires a personal guarantee and will require you to pay interest.

• Loans: Loans are available from a variety of sources, including local banks, the Small Business Administration, and non-profit organizations. Requirements vary, but are generally credit-based and will require you to pay interest. Some microloans from economic development organizations may also take character into account.

Capital financing requires you to give up a portion of your property to investors in exchange for their money.

• Friends and Family – For most business owners, this is the first stop when looking for financing. Your friends and family know your character and the process to obtain money is usually much shorter than other methods. Even better, most will not apply for a stake in your business in exchange for financing. Even if you know these lenders personally, be sure to get all agreements in writing.
• Angel Investors: They are highly valued individuals or groups of people who exchange their industry experience for a portion of their company’s equity capital. These investors can be difficult to find and some only focus on certain sectors. An internet search can uncover angel investors in your industry.
• Venture Capitalists – These companies are often interested in established companies or startups that will quickly be ready for sale or public offering. There are generally high standards for receiving this type of funding and you must be willing to give up some of your control.

Other types of financing:

• Business Plan Contests – Many are run by local business schools and require you to partner with at least one student to enter the contest. Winning could mean networking opportunities, funding, and ongoing support.
• Government Grants: Although it is a popular belief that the federal government provides grants for small businesses, money you do not have to pay back, it is not entirely true. Most grants go to local nonprofits that help start-ups rather than the businesses themselves. However, some states provide grants for special industries, such as technology and “green” sectors. Check your state’s requirements for more information.

As you can see, there are a variety of ways to obtain financing for your start-up. An accountant or financial manager can help you decide what type of financing would be best for you. For more information on business financing, including sample notes that can be used for family and friend loans, visit SCORE: http://www.score.org.

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This article, by Dequiana Brooks, originally appeared in Gemini magazine.