How to Arrange Funding for Your Small Business: A Quick Guide

Every business needs funds to keep running. Many small business owners also need funds to set up their businesses at the initial level. That’s when business financing comes into the picture.

Some business owners use their own savings or arrange funds with the help of friends and family. Other businesses seek funds from angel investors and business grants.

When it comes to funding your small business, there is no one-size-fits-all approach. It totally depends on how much money you need and what resources you have available.

Let’s take a closer look at how to evaluate how much funding you need to set up your small business and keep it running.

Determine How Much Funding You Need for Your Small Business

Determining how much funding your small business actually needs can help you create a more effective financial plan. It can also help you narrow down the potential funding options based on the needs of your business.

But how can you evaluate your business funding requirements?

As a business owner, you should consider startup costs as well as ongoing costs while calculating your funding needs, which will include:

• State and federal filing fees to register your business
• Trademark fees to trademark your brand’s name and logo
• The cost of building a business website
• The cost of manufacturing the first lot of products along with packaging and shipping costs if you want to run a product-based business
• The cost of necessary equipment, tools, etc. you may need to offer services to your customers if you want to run a service-based business
• Employee wages
• Taxation requirements of your company
• Overhead expenses such as office rent, utilities, stationery, etc.

Once you’ve determined how much you need, it’s time to assess your options.

If your business needs minimal funding, you should consider using your personal savings and getting friends and family loans.

However, if you need more funds than you can arrange on your own, you will have to consider lenders, investors, banks, and other financial institutions for business loans.

When it comes to third-party capital investment, your business structure can play an important role in arranging funds. Many lenders and creditors are more likely to invest in a Corporation than in a Limited Liability Company.

Corporations allow businesses to sell stocks in the company to the investors in exchange for funds, which means that the investors will have a share in your company. This helps reduce the risk for them and build trust, which makes it easier for you to get loans.

Regardless of the entity you choose, it is important to do all of the paperwork carefully if you want to attract investors for funding your small business.

While you can do it yourself, we recommend that you let a trusted company such as GovDocFiling do it for you. With professionals handling the legal aspects of starting your business, you can rest assured that all necessary documents will be filed correctly.

4 Ways to Seek Funding for Your Small Business

Let’s discuss how you can seek funding for your small business.

1. SBA Loans

Many business owners in the United States prefer to fund their startups with loans guaranteed by the Small Business Administration (SBA).

The organization doesn’t lend any money directly. They just work with their partnering lenders and lending institutions to help small businesses get loans. Lenders also prefer to invest their money through the SBA because it makes it easier for them to access capital.

SBA guaranteed loans offer a number of benefits such as:

• Fees comparable to non-guaranteed loans
• Continued support with some loans to help you run your business
• No collateral needed for some loans

You need to meet the eligibility requirements mentioned by lenders to get loans. For example, your business should be legally registered and operating in the United States

2. Bank Loans and Credit Cards

When you open a business bank account, many banks offer special benefits to their business accounts. You can apply for a business credit card as well as for full-fledged business loans.

Loan amounts, eligibility criteria, rates of interest, loan duration, and other benefits differ from bank to bank. It also depends on your business needs, your ability to pay back the loan, and your credit score.

You should research what different banking institutions are offering before making a decision.

The best way to seek funding from banks is to talk to a real person at the bank and then apply for a loan and complete the necessary paperwork. It can help improve your chances of approval.

3. Angel Investors

Angel investors are people with large amounts of money and an interest in investing in startups and small businesses. Along with funding your small business, they can also mentor and advise you to help you run and grow your business over time.

Angel investors usually invest in your business against a specific percentage of shares in your company. If you plan to seek funding from angel investors, you should consider forming a Corporation for your small business.

4. Business Grants

As a business owner, you can also look for business grants to support your budding idea.

For example, if your small business focuses on scientific research and development, you may apply for federal grants under programs that encourage research and development projects with high potential for commercialization.

Two such programs include the Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) programs.

Similarly, you can benefit from the COVID-19 financial relief programs for businesses.

You should check with the local and state governments to see if you may be eligible for any business grants.

Are You Ready to Seek Funding for Your Small Business?

You can start your business from personal savings and grow it gradually using the bootstrapping technique. However, lack of funds can cause you to lose a lot of market opportunities.

That’s why it is a good choice to look for funding options for your small business to grow it quickly and more efficiently. In this post, we’ve discussed some of the top funding sources that businesses leverage.

Do you need help starting and funding your small business? Connect with us in the comments below to get more useful tips and funding opportunities.