Small Business Advice: New Business Financing Tips

Tips and explanation on how to finance a small business, including practical money saving solutions, loans, grants, government resources and more.

The decision to go into business for yourself is an empowering one; after all, business ownership is the epitome of the American dream. But, once the decision has been made the hard work begins. How much money will I need? Where will I get it? What do I need to know? How will it be paid back? What are my options?

A common misconception is that when a business (start-up or existing) needs money, the only option is a bank for the common loan. Depending upon the size, nature and financial requirements of your business, there are alternatives ranging from short term fixes to long term commercial loans.


Often times, we think of financing as simply acquiring more money when in actuality it can be restructuring the way our current funds are distributed. Perhaps starting your business out of your home office (or an extra bedroom) is an option rather than taking on the added expense of commercial office space. This is an especially good temp to perm money saving solution if you don't see clients on a regular basis. If your business is not designed to function out of your home (i.e. the packaging plant just won't seem to fit in the hall closet) then look at a wide variety of spaces for your company. When it comes down to signing a lease, opt for the less desirable - and often times much less expensive - location. When the demand for an area is not at its peak, the chance of the rent increasing is significantly lower. You can always grow. Functionality is functionality. You can pay a lot or you can choose to pay less somewhere else. It doesn't matter how wonderful your facilities are if you are out of business in a year because the business couldn't afford the location.

Buy used office machines and furniture. Often the cost is less than renting and it is ALWAYS less than buying new. Auctions are a good place to find these buys as well as newspaper and online classifieds. Companies look to revamp their look and entire offices can be had very reasonably.


A relatively easy way to keep from incurring additional debt while still "finding" money to start your business is by refinancing personal property. Homes and cars are the most obvious places to begin. It goes without saying that holding onto an asset such as a boat or motorcycle, if not in use, is a piggy bank waiting to be tapped. A small, home based business's financial needs can perhaps be satisfied in this way, but a larger undertaking is probably better served through other means.

How is your relationship with your friends and family? While a large percentage of us grimace at the notion of borrowing from friends or family to finance our endeavor, it may be the best option for you. If a gift is not what you have in mind or not what your loved ones are willing to offer, perhaps a loan is a solution that would be welcomed by both. A simple agreement for repayment can be drafted if the parties are so inclined. This may prevent disagreements regarding repayment terms (or gift terms as the case may be) later. A small interest rate could be included as well. While the avoidance of additional payback may be the reason for seeking financing through these channels, those with poor credit scores are likely to see this as a viable option.


On July 30, 1953, Congress passed the Small Business Act which functioned to "aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns." Over the years, the Small Business Administration has assisted small businesses obtain funding through many different loan programs. Today, it is the nation's largest single financial backer of U.S. businesses with 219,000 loans in excess of $45 billion. SBA offices can be found across the country.


Depending upon the industry in which you choose to operate your small business, there may be federal grants that meet your needs. These monies are distributed through government agencies such as U.S. Department of Housing and Urban Development (HUD), Department of Transportation (DOT), Department of Justice, Department of Education, Department of Labor, National Endowment for the Humanities, Environmental Protection Agency (EPA) and more. Grants tend to be highly competitive and many applying organizations have professional writers composing their proposals. But, do not be discouraged. Not all grants are on a corporate level. You can qualify for grants based upon your sex, ethnicity, religion, or heritage - as well numerous other factors. There are small business grants available through most states as well. Contact your state's Economic Development Office or Department of Commerce for more information.


A common, though important misconception is that personal and business credit are separate. Actually, business credit is built upon the owner's personal credit. It is for this reason (among others) that it is vital to check your credit. Today, you can get a hold of your credit report quite easily online. A simple search for "credit reports" through any of the major search engines will lead you to an array of options for ordering yours. After carefully reviewing your credit history, immediately report and correct any mistakes through one of the three major credit bureaus: Equifax, Experian, and TransUnion. Good credit is the foundation for securing loans, leases, (and in some cases, grants) as well as building a successful business.

It would be impossible to address new business loans without including the SBA's loan programs.

Basic 7(a) Loan Guaranty

- Most common type of loan through the SBA

- Monies borrowed can be used as working capital

Certified Development Company (CDC) - 504 Loan Program

- Long-term, fixed rate financing

- For acquiring real estate or equipment, expansion or rejuvenation

Microloan - 7(m) Loan Program

- Short-term loans up to $35K for small business and non-profit childcare centers

- Monies borrowed can be used as working capital, purchase of inventory, equipment, etc.

- Monies borrowed cannot be used to pay existing debts or purchase real estate

Whether you go through the SBA or your neighborhood commercial lender, you will be expected to have a business plan in hand. Don't get caught off guard.

If it all sounds a bit overwhelming and you are thinking "I just need a small loan", then take time to consider a personal loan. A personal loan or even a line of credit is a good "backdoor" approach to small business financing. Get to know your banker. They can be invaluable in helping you decide which personal loan option is best for you.

By making an informed decision regarding financing, you can get your business started on the right foot. There is enough to worry about when starting a company; how you are going to finance your venture doesn't have to be at the top of your list.

© High Speed Ventures 2011