How to Successfully Fund Your Small Business

Once you are sure about having the attributes of a successful entrepreneur and after choosing the form of business ownership you want to adopt, it comes one of the most challenging part of running a small-business, which is financing or funding. Choosing partnership ownership structure will reduce the stress on personal assets a little, but you will still need to manage the capital to turn your plans into reality. In this post I will describe how to successfully fund your small business successfully.

A small business entrepreneur has several potential sources of capital:

• Personal Savings
• Relatives
• Former Employers
• Banks
• Finance Companies
• Venture Capitalists
• Government Agencies (Small Business Administration, Farmers Home Administration, Economic Development Authority, Minority Business Development Agency etc)

An estimated 90 percent of all start-ups receive money from friends and family. As it’s the most common form of financing method for small businesses, I’m not going to discuss about it further.

You may want to consider borrowing money from a potential supplier to your future business. The future supplier may be interested in funding your business if he/she thinks that you will be a big client in the future. But you have to remember that, its not a good idea to ask such an investor for money initially. Begin by asking for advice; if the supplier likes your plan, he/she might be willing to fund your business.

Other than personal savings, individual investors are primary sources of capital for many small business entrepreneurs. These individual investors, popularly known as Angel Investors, are private individuals who invest in potentially hot new companies before they go public. Financehub.com and garage.com are some of the websites who bring entrepreneurs and angel investors together.

Investors known as Venture Capitalists may also finance your business, but for a price. They might ask for a huge stake (as much as 60 percent) in return they will give you the money needed to start your business. If the stake is too high, you might lose control over your business. So always be careful about this sort of financing. If you are going to set up a relatively small business firm, better choice would be Angel Investors rather than Venture Capitalists. If your business needs millions of dollars to start, experts recommend that you talk to at least 5 different investment firms and their clients to find out the right venture capitalist for you.

Many US Government Agencies also help small businesses to start operating. For example Small Business Administration (SBA) advises and assists small businesses by providing management training and financial advice and loans. SBA provides loans and micro loans of different scale to new businesses. But the amount of the loan will depend on how solid your business plan is.

What do you think is the best way for financing your future small business? Whatever that may be, be sure that you have a reasonably full-proof business plan.

Best wishes.

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