Small Business Start-up Investment: Where To Find It

Do you know where to find small business start-up investment funding to launch your business?

Unless you are independently wealthy, you’re going to need access to capital to start a small business and get it off the ground. Getting your small business start-up investment money squared away should be one of the first things on your To Do list.

There are two primary investment funding sources – Debt and Equity.

Debt funding comes from loans that need to be repaid. Some loan sources are –

  • Banks – commercial or community
  • Micro lenders
  • Family / friends / network
  • Person-to-person lending sites (SBA gives and as examples)

Often, when trying to obtain bank loans, small businesses don’t have the collateral or credit history to qualify. In this case, you can turn to the U.S. Small Business Administration(SBA), which offers loan programs and services to small businesses. The SBA reduces the risk to lenders by guaranteeing major portions of these loans.

Equity comes from money you already have, and/or investments in your business made by others, usually for part ownership. Some equity sources are –

  • Savings
  • Home equity
  • Other real estate assets
  • Retirement funds
    There are some programs (see funding resources below) that allow you to use your retirement funds before retirement age for business expenses without taxes or penalties. You can use these funds for start-up expenses, working capital, business expansion, and equity toward SBA or other loans.
  • Family / friends / business network
    If you plan to go to them, involve them early in the process
  • “Angels”
    People who provide start-up or growth capital to promising ventures, often helping with advice or contacts as well
  • Venture capital partnerships

Obtaining equity commitments will make securing loans easier because from a lender’s point of view you and others have “skin in the game”., This will make those lending you money more secure in the fact that you will do everything possible to succeed.

We discussed this topic of small business start-up investment with one of our Divorce With Dignity business associates, financial coach Resa Shore of YourMoneyHealth.Com. Below are her comments about small business start-up investment funding.

Do you have suggestions for where a new entrepreneur can find small business start-up investment money?

There aren’t a whole ton of options for very small businesses. If you are a business with a huge potential then you can look for angel capital, but that is not realistic for most small businesses. I would suggest you look to –

  • Your personal savings
  • An SBA-guaranteed loan through a bank
  • Applying yourself for a small business loan at a bank
  • Using credit cards
  • Home equity loans
  • Borrowing from family and friends

The SBA-guaranteed loan is a good way to get financing. There are SBA offices all over, and they are really helpful to small business owners. But whatever you do to get funding, you must have a really tight business plan.

As a coach, I encourage my clients to save up a year’s worth of business expenses and at least six months of personal expenses before opening a business. It’s rare for a business to take off immediately, and you need to be financially prepared. If you follow this plan, you may not need to take out any loans. But to do this you must have absolute clarity on your financial situation and projected expenses.

Do you have advice on how to start a business “on a shoestring budget”?

You can start your business part-time while keeping your “day job”, or start working your business from home to begin with. You can try to get some advance commitments for work, so that you begin with the potential of money coming in. Plus you can reevaluate your lifestyle, give up some luxuries, and be more frugal.

When someone is just starting out in a business, how can you as a financial coach help them to make wise financial decisions?

The first thing I would do with someone like this, and what I consider the most important thing, is to help them get complete clarity on their personal finances. If they have problems with debt or overspending, then their business is doomed. We figure out what their business expenses would look like. At the same time, we figure out what their financial needs are in their personal life.

Next, we strategize a plan on how to meet those expenses, including saving money for taxes and irregular expenses. One of the key problems for most business owners is erratic income, so we have to plan for having “bad” months.

Finding funding for small business start-up investment does take some preparation, research and effort, but it can be done. For those of you in the legal profession, starting a divorce legal services business as a Divorce With Dignity Provider owner will cost you thousands of dollars less than doing it on your own (see previous blog post “Costs Of Starting Your Own Divorce Legal Services Business”), plus you will have the benefit of expert training on how to start and manage your business. Visit our website to learn about the many advantages of joining our Divorce With Dignity Network.

Small Business Funding Resources

Small Business Administration
Small BusinessOpportunity/Financing