How to Get Money to Start a Small Business

By Heather Rutherford

  • Overview

    Starting a new small business is one of the most exciting adventures anyone can embark upon. However, one of the main reasons that new small businesses fail to succeed is because they do not have enough money to support the small business before real income can be made. While it is noble to attempt to start a small business without any outside resources, it is nearly impossible for the average person to accomplish. Knowing how to get money to start a small business is the first step to success.
    How to Get Money to Start a Small Business
  • Getting Organized

  • Step 1

    Create a solid business plan. Before even considering asking for money from banks or investors it is important to have a plan in place to start a small business. Address issues like the company description, current market trends, potential customers, product line, management and employees, marketing strategies, and financial outlook.
  • Step 2

    Decide how much money is required to begin operations. Determine how much money will be required to operate the small business within the first 2 years of operation. Weigh these numbers against a worst case scenario for income to determine how much money is needed to start your small business.
  • Step 3

    Weigh all options for sources of startup income. Options can include a personal source of saved funds, friends and family, small business association (SBA) loans, traditional bank loans, angel grants, investors or some combination of the above. Note that no government grants are awarded to new businesses. Some private grants and loan opportunities may be available in the local area. Search college campuses and local media sources for more information.
  • Step 4

    Ensure that personal credit scores are good and consider options for collateral. Collateral includes cars, property, business inventory or other valuables. Just make sure that the collateral is something worth losing in the case of loan default. Pay off any bad debts to improve credit scores quickly.


  • Request Money

    • Step 1

      Prepare a presentation. No matter who the request for money is made to, they will want to know that this small business will be successful and the money will be used wisely. For a personal acquaintance, the tone can be more informal but a presentation to a bank or venture capitalist will require a more professional presentation.
    • Step 2

      Arrange a meeting. For a meeting with a bank or angel granter, be prepared with your business plan, solid numbers for startup costs and the amount requested, as well as a professional appearance. The banker will likely discuss all options available so be prepared to begin the application process at this time. For the application, bring all licenses and any other business paperwork you've gathered so far. This might include leases, tax identification numbers and any income information. For a meeting with a friend or family member, personal appearance will not be as important but dressing a step above an average day is not a bad idea. The amount of preparedness should be equal to a meeting with a banker.
    • Step 3

      Decide on a repayment schedule. Before an agreement can be made, the lender will want to know how their money will be returned to them. Be realistic. Most loans will require that all funds are repaid, with interest, within 7 years. The minimum monthly payment, however, has to fit in with the small business profit schedule. If a grant is offered, ensure that there are no strings attached. If the venture capitalist requests partial ownership and share of profits, be sure that the terms are reasonable. Negotiate repayment and ownership terms so that you and the investor are both fairly represented in the agreement.
    • Step 4

      Draft or read the contract. No matter who lends money to start a small business it is important to have a contract in place that states the total amount to be borrowed, repayment schedule, and interest rates to be applied or ownership entitlements.
    • Step 5

      Sign the contract and deposit the check!
    • Skill: Moderately Challenging
    • Tip: Consider business credit cards with low interest rates over traditional sources of funds for short-term financing needs.

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