Multiple sources of privately funding a small business exist, and there are many ways to find these sources of financing. Lenders and investors alike are numerous, and thus finding them is not necessarily the most difficult part in obtaining small business financing. In other words, finding private funding for small businesses involves locating the most appropriate financier(s), and then proving to them, the investment and/or loan is worth making.
The key(s) to obtaining funding is generally multi-tiered involving some or all the following factors 1) a solid business history, 2) an excellent business plan, 3) demonstrated credibility and commitment to the business 4) knowledge of the business and industry and 5) organizational skills and the ability to carry out the business plan.
If one has all these proverbial "ducks in a row", the next step is to find the funding, and at as low a cost as possible. Since there are several sources of private financing for a business, it is probably not imprudent to take a little time exploring and discussing the different lending options and terms with lenders. If the business is a new business that hasn't been incorporated yet, the business structure such as limited liability corporation, partnership, small business etc. in addition to the articles of incorporation and bylaws will determine how many shares, if any can be offered to private investors and at what price.
Sources for funding a small business
Several of the different avenues for funding a small business are listed below. These sources of financing generally have varying terms. For example, a venture capitalist may seek out partial ownership of the company and its net income whereas an private lender not interested in ownership will more likely seek out a periodic interest rate and eventual payment of the principle of the loan. What's more, partners or co-owners may only seek out profits when they earned as they have a vested interest in the survival of the business.
• Private stock offerings
• Partnership and business structure
• Venture capitalists and/or angel investors
• Online and offline private lenders
• Seed and start up grants from private organizations
• Networking via accountants and attorneys
• Listing via affiliated organizations of interest
Approaches to take when finding funding
As with most funding, the co-owners, lenders, partners, investors etc. are interested in the stability of their loan and/or investment. For this reason demonstrating either the likelihood of the loan being paid back or the return on investment is important. If one already has the knowledge and skill to effectively run a business successfully, but little or no financing to operate the business, a next step is to prove the business will work by making obvious the adeptness of the ownership and/or management in the following ways.
• Professionalism
• Strong documentation of business plans and/or performance
• Excellent interpersonal and communication skills
• Viable personal and/or business credit rating
• Dedication, know how and proven fervor and skill in the business
Lenders and investors will often not just look at what's good about the business and its management, but also what is bad. They may look for holes in the operations, declines in valuation, revenue, or profit margin statistics and seek out explanations and answers for scenarios, financial actualities and future predicaments. It is consequently, also important to be ready to answer these questions well.
Summary
Funding a small business is a dream many persons pursue to achieve their life goals, realization of their passions and in living out a rewarding and fulfilling life that is meaningful and happy. In the case of start ups, this dream is often the vision that will carry on throughout the life of the business as it evolves. For existing businesses, there may be new projects in the works, bigger dreams, liquidity concerns, seasonal factors etc. that require additional funding.
Essentially funding a small business requires strong presentation and proven ability and capacity to carry out a business plan/continued small business operations. There are many sources for financing small businesses, and finding the sources may be easier than proving to them a small business is worth funding. This article has illustrated some of the sources of private business financing for small businesses in addition to some of the ways to go about obtaining the small business funding once the source has been located. As with any business venture, achieving success can be competitive, and therefore obtaining the financing can also be competitive.
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