Published January
2005
Where
to find the money
to build your business
Dear
BizBest: I have great ideas for my new business, a knack for organizing,
a killer business plan, good contacts, and I’m a tireless worker. Plus,
I’m young (not bad looking, either) and have confidence galore. But one
thing’s missing: MONEY. I’m totally flummoxed about funding. Can you explain
the options and suggest some helpful resources? — Unfunded
Dear Unfunded:
Money — or the lack thereof — is the missing link in many a grand
business plan. Startups often launch with less than they need and struggle
from Day One. Adequate financing and the know-how to use it wisely are
crucial ingredients for your business to grow and thrive. Inadequate funding
limits what you can do.
Funding types and
sources fall into a few broad categories — either debt or equity financing
from institutional or informal sources.
Debt financing is
a loan you pay back. Common sources include family and friends, personal
credit cards, home equity lines of credit, commercial bank loans and bank
loans backed by the U.S. Small Business Administration. Some small businesses
also receive a type of funding from suppliers and vendors in the form
of special payment terms, discounts or even direct loans. Suppliers want
you to succeed, so they are sometimes willing to help.
With equity financing,
you give up pieces of your business in return for the cash. The good news
is, you generally don’t have to pay the money back. The bad news is that
the people or institutions that put up the money — your investors — now
own part of your business. Venture capitalists work this way, and stock
offerings are a type of equity financing.
Other funding or
cost-sharing options include:
- Partnerships,
joint ventures, alliances and co-branding arrangements.
- Business incubators.
These don’t generally offer cash, but do provide crucial support in
the form of free or reduced rent and business services.
These resources can
help with funding issues:
- The SBA 7(a)
Loan Guarantee Program is Uncle Sam’s main small-business financing
tool. It helps secure loans for small businesses that are unable to
find financing on reasonable terms through conventional lending channels
and will guarantee up to $1 million. For details, visit www.sba.gov/financing.
- vFinance is a
business finance portal where you can get leads on venture capital sources
and angel investors. Some information is free, while other items involve
a cost. Visit www.vfinance.com.
- The National
Venture Capital Association, an industry trade group based in Arlington,
Va., can help link you to hundreds of venture capital and private equity
firms nationwide. The NVCA Web site has a good “Industry Overview” that
describes the basics of how venture capitalists work, including the
different types of firms and kinds of entrepreneurs they want to work
with. Best of all is the list of NVCA members, available on the Web
site for free. Click on the name of a VC firm and it will take you to
its Web site. NVCA also sells print and CD versions of the directory.
Visit www.nvca.org
or call 703-524-2549.
- Count Me In is
an online micro-lender that offers access to business loans of $500
to $10,000 for women entrepreneurs across the United States who have
nowhere else to turn for that all-important first funding. Visit www.count-me-in.org.
- CircleLending
is a resource every entrepreneur planning to borrow from family or friends
should know about. This firm provides all of the loan administration,
record-keeping, payment processing and structural support often lacking
in loans of this type. A free, 16-page report called “Financing Your
Small Business: How to Borrow from People You Know” addresses common
concerns. Visit www.circlelending.com
or call 800-805-2472.
- The National
Business Incubation Association offers information on incubators and
can help you locate one in your area. Visit www.nbia.org.
Daniel Kehrer (dan@bizbest.com)
is founder of BizBest (www.bizbest.com),
which publishes “The 100 Best Resources for Small Business.”
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