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How to Finance a Small Business

You have a dream and it comes with a price tag. Consider several different avenues to finance your small business, picking the one that gives you the best chance of succeeding.

Instructions

  • Step 1: Supply your money Use your own money to finance a small business -- the business will be worth more up front and will look more attractive to outside investors when it's time to grow.
  • TIP: In most cases, capital for new businesses comes from savings and other personal resources.
  • Step 2: Finance through friends Finance a small business start-up through private sources, friends, and family. Get the loan interest-free or at a low interest rate, to get on your feet.
  • Step 3: Hold a second job Maintain a second job while launching your small business to infuse the enterprise with steady cash. Be aware that it will also strain the focus, time, and energy dedicated to the business, which could ultimately threaten its survival.
  • Step 4: Use a credit card Use a credit card to fund the business venture. Between 28 to 42 days of interest-free money allows some room to manage cash flow.
  • Step 5: Get a bank loan Draw small loans from lenders. Banks and credit unions will loan money to a small business on the basis of a sound business proposal.
  • TIP: There are 2 types of loans: long and short term. The short-term loan, for working capital and lines of credit, normally extends credit for up to 1 year.
  • Step 6: Research government loans Research Small Business Administration loans, or energy-efficiency, veteran, disaster-assistance, and other governmental loans and grants. Prepare a loan proposal with market, financial, and personal information.
  • Step 7: Find an angel Find an "angel" investor who supports the dream and will stay out of the way to see it succeed. Set clear rules about payoff and options to avoid hassles later. Enjoy your new business!
  • FACT: As of 2010, of the new businesses created and launched each year, seven out of 10 survive at least 2 years, and about half survive five years.

You Will Need

  • Capital
  • Friends and family
  • Second job
  • Credit card
  • Loans
  • Angel investor

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