How to Get Money for Funding Your Small Business

No business, no matter how small, is an island unto itself. One of the best ways to mitigate risk and increase competitiveness is to partner with other businesses. As a small business owner — or someone aspiring to be one — you might want to consider partnerships with government agencies as a way for your business to grow and thrive.

Most government agencies have programs for small businesses that can help your business diversify its products or services, help you gain access to new markets, create additional jobs and even earn grants. Additionally, these agencies often act as conduits for private financing from organizations like the Small Business Administration or other lenders.

It’s not easy to get a government grant — you need to submit a business plan and be able to prove that you have a viable business idea, along with the financial ability to execute on it.

This article will cover the following:

  1. What funding is and why it’s so important for your small business
  2. How to get grants from private companies
  3. How to get loans from banks for small businesses
  4. Why government agencies are a great resource for funding and grants
  5. What the Small Business Administration does to help you with financing or grants

 

  1. What funding is and why it’s so important for your small business

Nothing is more essential to the success and future growth of a small business than capital. Without it, you will not be able to diversify your product lines or reach new markets, hire employees, set up a manufacturing or distribution center or procure materials. In addition to these goals, capital can help a business grow by allowing it to expand operations and potentially move into new areas.

Capital is also used to prepare for economic downturns caused by world events, as are the types of funding options that follow.

When applying for a loan or grant from an independent source, you often have to produce a business plan, which describes your company’s goals and the short- and long-term strategies you’ve put in place to achieve them. These strategies may include proof of debt, capital or new product development and more.

For example, if your business has been around for at least one year and has had no problems obtaining credit, it should be considered by banks as a viable risk and will be able to obtain loans easily.

 

  1. How to get grants from private companies

There are a number of private sources that can provide capital for small businesses.

In general, private sources will provide less funding per dollar than government agencies, but they are more targeted towards your specific needs and have no strings attached. These loans are often more competitive and easier to secure for a business that takes risks or doesn’t have much collateral to back them up.

Some of the private companies you can look to for capital:

For-profit corporations: These corporations are run much like a business. They’re registered with the government, have public shareholders and generate a profit. For-profit corporations tend to have stricter requirements than other entities when it comes to providing capital to a small business, though they are also more likely to offer loans with longer repayment periods. They often will not offer more than three or four years without seeing a profit.

 

  1. How to get loans from banks for small businesses

There are some steps your business will need to take before approaching a bank for a loan.

To begin, you’ll need to assess your business goals and strategize how you’ll achieve them. For example, you may want to purchase new equipment or hire more staff, and those are a few of the many things you can use money for.

During this process, you’ll prioritize your goals based on how much they will benefit the company and the resources needed to attain them. A business owner will need to analyze their financial statements and assess their business’s financial viability.

How Businesses Find Loans

In order to get a loan, your business needs to show a certain amount of potential. It’s not enough just to have your business plan written and ready—you will need to show potential lenders that you have an actual chance at making money in the future.

 

  1. Why government agencies are a great resource for funding and grants

Government agencies are simply more willing to invest their funds in your business than they would be in a bank, lending institution, or any other entity that is a little riskier. Your business is a public company, and you must file your annual reports and be prepared to prove that you earn money. If your financial statements cannot be confirmed by a third-party auditor, then you’ll likely be investigated by the SEC. Banks or other lending institutions are not as likely to scrutinize the information you report until they have been definitively audited.

You may also find it advantageous to continue to keep some of your business dealings secret in order to outwit potential competitors.

 

  1. What the Small Business Administration does to help you with financing or grants

The Small Business Administration (SBA) is a government agency that provides financing for businesses and loans to individuals.

The SBA has two different types of loans: business loans and private loans for individuals. The difference between the two is the type of collateral used to secure the loan, so you should meet with an SBA loan officer to learn more about each way.

Private Loans

This type of loan offers businesses a much higher interest rate, but does not require any collateral in order for the lender to fund you. The only requirement for private loans is that you be able to show that you have a sound business plan.

Business Loans

To qualify for a business loan, you need to provide the proper paperwork, along with a detailed business plan that outlines your goals and plans for the next year.

You may also want to consider other forms of financing. It’s important to understand that private funding is less consistent and more variable in its availability than government loans or grants.

There are many different sources of funding available for small businesses these days—government agencies, private companies and banks. Which type of funding you choose depends on your financial needs, maturity of your business and business structure.

If you are a making or running a business with limited funds, the following are some of the best sources of funding for small businesses.

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