chapter 6


Every business needs funds to operate. In general, there are four places to get the money needed to run a business: you either have it already (lucky you), borrow it, are granted it, or you receive capital from investors. Within each group, you'll have a few options, so be sure to investigate each option and find the best fit for you and your business.

With that in mind, your first task should be to determine how much money you need to get your business off the ground and where that capital needs to go to accomplish it. The further ahead you can plan for, the better off you'll be. But for now, what's important is just accounting for the first few months of business operation. Factor in the one-time costs, such as licensing fees, along with recurring charges like rent and restocking your inventory.

After you've accounted for everything, you should have a clearer picture of the cost of your initial startup and the costs of keeping it running in the future. From here you can add any other expenses that you feel can make a strong impact or subtract anything that isn't critical.

Now all you need to do is figure out where to get that amount. Easy, right? Here are a couple of options:

    Personal financing

    Well, if you have funds already set aside for your business, there really isn't much to cover—just be sure that everything is accounted for in your financial planning and that you have a plan in case things don't work out.


    Many businesses get their start by borrowing. Obviously, the drawback to borrowing money is that you have to pay it back—with interest. The advantage is that there is a loan for almost any purpose. Many organizations offer business loans, including private lenders, credit unions, local governments, and institutions like the SBA (Small Business Administration).

    However, no matter the purpose of the loan or where you're getting it, there are a few things you'll want to pay close attention to. Beyond the value of the loan, you'll also want to examine the payment period, the interest rate, and whether or not that rate is fixed. Be sure that the terms of the loan fit within your business plan.

    To apply for a loan, you'll need a lot of information about yourself and your business. Most applications will require a full accounting of the money: how much is needed, where it will be spent, and why. If you're properly armed with an inventory of all your expenses and a solid business plan, these should be easy questions to answer.

    Also, you'll usually need to provide all the relevant documents relating to you and your business. Here is an example of what is required for an SBA general loan:

    • Personal background and financial statement

    • Business financial statements

    • Ownership and affiliations

    • Business certificate/license

    • Loan application history

    • Income tax returns

    • Résumés

    • Business overview and history

    • Business lease


    Grants are hard to come by in the business world. Typically, grants are given by the federal or local government and are usually only available for non-commercial organizations (non-profits, charities, and educational institutions). While this excludes a great number of startups, you still may be able to find grants for certain services that benefit the public—such as expanding a child care or health services business.

    If you are in one of these fields, or plan on starting a non-profit organization, you may want to start with the federal government or your state's Secretary of State office to see if you are eligible. However, keep in mind that business grants, unlike normal grants, often have stipulations attached that may place controls on how the money can be used or require you to match the value of any grant money received.

    It's also worth noting that private grants may also be available. These grants will vary greatly from industry to industry but it may be worth the time to investigate.


    Another way to raise money is to sell equity in the company. This is fairly straightforward: a simple exchange of money for a share of ownership in your business. This can be an attractive option if you can sell investors on your business; however, you'll want to consider a few things when pursuing this path.

    First, be careful of how much equity you're actually selling. It may seem obvious, but if you're not in control of the majority of your business, you may be outvoted and out-leveraged when it comes to guiding your business.

    Second, be sure your business structure is appropriate for investors. Sole proprietorships, partnerships, and LLC's by definition cannot issue stock—which leaves you with corporations. S-corporations can have up to 100 shareholders, while C-corporations can issue unlimited amounts of stock as well as stock at different tiers. C-corporations are best suited for stock and venture capital in general; however, they are more heavily regulated and do not offer pass-through taxation—so don't rush into forming one without considering all the benefits and drawbacks.

Regardless of where the money comes from, be careful before putting too much of your money into your business too quickly. While everyone wants their business to grow, you need to be certain that your money is well-spent and that you're getting an acceptable return on your investment.

small business finance


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