Business Financing Options
Choosing the right sources for funding your business may mean the difference between success and bankruptcy. Tapping several different sources of capital may take considerable time and effort, but is a viable option for businesses in today’s economy.
Check if your community offers Tax Increment Financing. In some states, the subsidies are up to 30% the cost of your project. You may even be able to borrow against this value.
Lock down a venture capitalist. VC’s don’t fund even 1% of small businesses in the US, but they seek out companies with potential for rapid growth. It can be difficult to attract attention – venture capitalists are more likely to stick with their previous investments than reach out and try something new. Still, if you can attract one, it may be well worth the effort.
Use your assets. Asset-backed loans, where you borrow against the value of collateral, have experienced a recent surge in popularity. Businesses in 2012 have been dipping into asset-backed credit over 3% more than 2011. This can be a useful option when you are a new business and don’t have the track record to qualify for more traditional lending options.
Apply for a SBIR grant. For more information, look here.
Go directly to your suppliers. Getting funding directly from vendors will take the power out of the hands of other financiers and let you keep some of the control. For example, Best Buy was built using financing from large consumer electronics firms.
Lease fixed assets whenever possible. Find a quality, low-price lease that will help you conserve cash for something you really need. Take caution and find a lease that will be worth your money.
Try a SBA 7(a) loan. In fiscal 2011, SBA loaned a total of $30.5 billion, almost double that of 2009. The SBA 7(a) is the most popular of all the federally sponsored debt-financing programs. The size of the loan will affect the interest rate – if you are looking for a smaller loan, it’s possible that a lender will be a more viable option.
Explore local economic development organizations. Interest rates tend to be low. Plus, the organization may be able to offer you extended terms or special conditions. They may not be able to fund your whole operation, but they may make it easier to attract other funding sources.
Study up on tax deductibles. You may be able to reduce your taxes if you can use your profits to expand your business.
Ask for payment in advance. Depending on your product, customers may be willing to provide advance payments to help you get started and ensure prompt delivery of their product. Dileep Rao writes in Forbes, “About half of the world-beating entrepreneurs in my book, Bootstrap to Billions, were funded by their customers. This strategy allowed them to grow faster with limited resources.”
Do it the old fashioned way. Many billion-dollar businesses have found a way to flourish without the help (and unwanted influence) of external financiers. You’ll need to strategize carefully in order to survive on your own cash flow. Even if you end up needing a bit of help, financiers are impressed by both personal and financial investment in a project.
If you must, snag an angel investor. You may find yourself having to sell ownership in order to get your company on its feet. If so, try to find a respected, seasoned professional. They may be able to provide some advice or connections for you and your business.
Just ask around. Sometimes what really gets companies off the ground is a particularly lenient and giving family member or friend. See who from your life would be willing to invest. Chances are, they won’t be too stingy if you are late or come up short on interest.