Getting started as a business owner can be difficult, as most people don’t have the money needed to launch a business on their own, while banks typically only make loans to businesses with established operating histories. This means for first-timers, financing their business will likely require a different approach and some alternative strategies. Thankfully, there are many paths for securing financing, offering virtually everyone the opportunity to start and expand their business.
Preparing For Launch
Before you start looking into funding options, it is important to know where you stand in terms of your business and your finances. For those who haven’t officially launched their business yet, it can be intimidating to get started if they don’t already have a lot of money on hand. That said, there are several businesses that don’t require a lot of money to get started, especially if they are mostly conducted online or simply don’t require a designated business location. Besides, one can start small and humbly and grow over time.
Starting a business without funding also comes with certain advantages: as previously mentioned, banks favor businesses that have established operating histories, so this offers an opportunity to build up that experience before seeking out funding. Additionally, it gives you time to go over your credit score and take action to improve upon it. Most sources of financing will favor businesses with a high FICO score, with 670 or above generally being ideal.1
Whether you decide to launch your business before obtaining funding or want to wait until you have more money to your name, you should conduct a thorough evaluation of your financial situation and your business to determine how much funding you think you’ll need. This includes both short-term costs and long-term expenses: office space, necessary equipment/software, legal fees, payroll, rent, business cards, etc. You should also review what might serve as collateral for any loans you plan on undertaking.
Types of Financing
As we’ve previously covered, you have several options available when considering funding for your small business.2 These include:
- Credit Cards
- Credit Unions
- SBA/Small Business Grants
- Venture Capital
- Angel Investors
Outside of self-funding, most financing can be categorized into two options: debt financing and equity financing.3 Debt financing refers to any borrowed money which the entrepreneur must pay back to a person or lending institution, such as a loan, line of
credit, or bond. Equity financing is money lent in exchange for ownership in a business, such as with venture capitalists and angel investors.
Getting the Money
Once you know how much money you need and what funding options you have, all that’s left is to put in the work to earn your funding. Small business loans, grants, and other financing options tend to garner a lot of competition, so it is essential that you do your research and take the necessary steps to stand out from the competition. Lenders usually have specific wants and needs when it comes to who they choose to fund, so look into it and see how well you line up.
Be prepared to answer questions about your business and highlight your past financial performance, along with your plans for the business going forward. You need to instill confidence that you know what you’re doing, so be sure to have an in-depth business plan and become familiar with it. Also, be prepared to explain why you need the money. Lenders and grant-givers want to know where their money is going, so be sure that you have an answer for them.
However, while you need to have a clear sense of vision going forward, it needs to be well-grounded as well. Many lenders and investors can get spooked by overly optimistic, “pie-in-the-sky” entrepreneurs who have lots of big ideas that seem far beyond their reach. There’s nothing wrong with being ambitious of course, but also need to demonstrate that you have a realistic sense of both where you are and where you are going.
Thinking About the Future
After you finally receive the funding you were looking for, you’ll probably want to feel like celebrating, and with good reason. But remember that it is only the first big step in the long-term success of your business. Whether you took out a loan or secured a small business grant, you will likely have an agreement to stick to in order to ensure that you receive the full extent of your funding. Make sure you understand all requirements and perform them both expediently and to the best of your ability.
Follow these rules and you’ll be well on your way towards effectively growing your business!
1. myFICO. (2021, June 4). What is a FICO score and why is it important? myFICO. https://www.myfico.com/credit-education/what-is-a-fico-score.
2. For further details, read The First Step: Finding Funding For Your Small Business. https://ccsklaw.com/the-first-step-finding-funding-for-your-small-business/
3. Maverick, J. B. (2021, August 31). Equity financing vs. debt financing: What’s the difference? Investopedia. https://www.investopedia.com/ask/answers/042215/what-are-benefits-company-using-equity-financing-vs-debt-financing.asp.
About the author
Isaac Isaiah Carr, JD MBA is founder, CEO, and business attorney of CCSK Law, a kingdom-driven law firm. Launched 5 years ago, CCSK Law grew from a single member firm to a 10 person team. His areas of focus include business formation and strategy, contract writing, sales, and corporate finance. Often referred to as an entrepreneur with a law degree, Isaac is able to offer business strategy utilizing creative solutions guided by legal and accounting principles that are then well executed in law. Experience in a variety of industries including real estate, hospitality, automotive, e-commerce, professional services, and healthcare. Successfully negotiated and closed multi-million-dollar transactions, ranging from $1.8M to $10M, with private investors, corporate leaders, and municipalities. Ultimately, he builds sustainable structures for systematic growth. Graduated from Valparaiso University Law School summa cum laude with his Juris Doctorate as well as the AACSB-accredited Valparaiso University School of Business with his Master’s in Business Administration. Passionate about education in all forms, Isaac is involved in the nonprofit organizations of SCORE, Neighbors’ Educational Opportunities (NEO) and New Vistas High School, ValpoNext, and Music Neighbors.