By Hannah Becker
Starting a small business requires many things – an innovative business idea, a unique brand, a product or service, a workplace location, business licensing and insurance, a well-developed network, a marketing plan and research, a competent team, professional advisers (accounting, legal, etc.), and financial capital.
While it’s often the aspect of launching a business that entrepreneurs put off addressing until critical times, financial capital is arguably the most limiting factor of business development. Without financial capital, even the best of business plans will fail to get off the ground.
Identifying potential financial resources during the startup phase can help entrepreneurs scale their business in an efficient manner.
Business Plan Before Business Funding
Before you seek funding for your business, take some time to develop a formal business plan that includes market research, SWOT (strengths, weaknesses, opportunities, and threats) analysis, and financial projections. Prospective investors and lenders are focused on evaluating your startup on financial performance – not just your passion or interest in starting the business.
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Once you’ve developed a formal business plan, practice answering finance-related questions about your business model and flesh out a three- to five-minute pitch focused on the financial potential of the company.
All too often, new entrepreneurs discuss the feelings around their startup (“I’ve wanted to start a business since I was a child,” “This business is my lifelong dream,” etc.) and fail to relay financial information – the information that is pertinent to investors’ and lenders’ decision-making processes. The Small Business Administration (SBA) provides aspiring entrepreneurs with an excellent business plan guide and startup costs calculator online at www.sba.gov.
Here are a few funding resources for small business startups:
Business grants are an entrepreneur favorite, primarily because they don’t have to be paid back. Grants can be an excellent way to help a small business get off the ground and invest in its brand development, offerings, and infrastructure. Starting a business is expensive, and having access to debt-free funding can take a lot of pressure off the entrepreneur and allow them time to focus on providing the company with a solid foundation versus paying back business debt.
Here are a few business grants available to small business entrepreneurs:
- FedEx Small Business Grant Contest – Winners are selected through a process of online voting, and the grand prize winner receives an award of $50,000.
- StreetShares Veteran Small Business Award – Open to both veterans and military spouses that have started their own business. The grants are available for amounts up to $15,000.
- The Zach Grant by Fundera – Awards small business owners a $2,500 grant to help them grow their business.
- Visa Everywhere Initiative – Applicants are required to respond to business-related challenges and provide potential solutions.
Crowdfunding differs from business loans in its return expectations and structure. Instead of presenting a commercial lender with a 40-page business plan, crowdfunding requires the entrepreneur to develop a pitch supported by video and images asking community members to support the funding campaign.
In exchange for financial support, the entrepreneur gifts the supporter a good or service in exchange.
This type of funding could be a good option for an entrepreneur with a vast social media reach. Here are a few popular crowdfunding sites open to entrepreneurs:
Investors provide financial capital to a business in exchange for equity. The more equity they take in the company, the more control they have over the company’s direction and operation. Investors can be an excellent source of advice for new entrepreneurs, providing that the entrepreneur is comfortable giving up part of the company in exchange.
Here are a few equity investors groups that focus on entrepreneurs in the military community:
If you’d like the guidance of an experienced business professional, without relinquishing control of your business, BunkerLabs’ CEOcircle program might be a good option. Participants in the program receive mentorship, assistance in raising additional financial capital required to scale their company, and the opportunity to expand their network.
Small Business Loans
While not without risk, business loans can help launch a new business or keep it in operation before it’s self-sustaining. It’s crucial for entrepreneurs to recognize that business loans must be repaid even if the company doesn’t make any money. Understanding the potential implications of taking out a business loan, especially if the business fails, should be part of the pre-lending risk analysis by the entrepreneur.
Here are a few business loans specifically designed for small business startups:
- Accion – A microloan available up to $10,000, Accion’s commercial lending packages are focused on startups that have been in business for less than six months.
- KivaZip – A crowdfunded lending option that invites social entrepreneurs to crowdfund a startup loan up to $5,000 with a 0% interest rate.
- SBA Microloans – Financing for small business startups that’s available up to $50,000. SBA-guaranteed loans are available in larger amounts and can be accessed online through the SBA’s Lender Match If you’re a veteran, be sure to check out the SBA’s Patriot Express loans – a lending product specifically designed for veteran entrepreneurs.
- StreetShares – Offers commercial lending options for up to $250,000 to qualified veteran entrepreneurs. Approval is reported to be within a matter of days. (*StreetShares' website only mentioned veterans as eligible for commercial loans; however, StreetShares’ grants are available to both veterans and military spouses.)
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In conclusion, securing adequate funding to launch and grow your business can be a daunting task for a new entrepreneur. Recognizing that there’s not a one-size-fits-all approach to business funding can be helpful to keep in mind when evaluating funding options. Business grants, crowdfunding, investors, and small business loans are all different in availability, requirements, and post-award expectations.
Researching both the short and long-term implications of each funding venue, along with potential financial implications should the business fail, can help entrepreneurs make informed decisions about their financial future.
This article was originally published in March 2020. Hannah Becker is a marketing professional, tech innovator, and military spouse. She currently works as the creative director for Becker Digital and is an adjunct instructor of business, computer science, and economics.