How To Get Business Funding: A Guide for Employers

Once you have an entrepreneurial concept in place, your next step is to get funding to start your business. As one of the most important and first financial decisions that you make as a business owner, you need to spend time evaluating how much funding your business needs and researching where to get it from.

 

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Why is business funding important? 

Funding allows business owners to pay for the equipment, materials, space, staff and services needed to open and run an organization. All businesses require some money to get started, but the amount required varies depending on the industry and type of business. 

How much funding you receive and the method that you use to secure it has major effects on how you operate and structure your business because you are putting your company in debt before it has begun to make a profit. In order to ensure that your business is successful in the long term, carefully consider how much funding you need and where you will find it.

Related: 10 Steps to Starting a Business

 

Types of business funding 

There are various ways that you can secure funding for your business, such as:

  • Self-funding: Sometimes referred to as bootstrapping, use this method to leverage your personal financial resources, such as your 401(k), your savings account or the resources of friends and family to fund your business venture.
  • Crowdfunding: Online crowdfunding allows a large number of small investors to contribute to your business or project.
  • Angel investors: While you could use angel investors to start a business, you usually use this type of funding when you have already started a business and you need more funds to grow. Angels often come in the form of wealthy individuals or groups who provide funding in exchange for ownership equity or debt.
  • Bank loans: Financial institutions provide loans to business owners. You need to provide collateral and a good credit score to receive a low interest rate on a loan.
  • Venture capital: Investors usually give venture capital investments to high-growth businesses in return for an active role in the company and an ownership share.

 

How to get funding for your business 

Here are some steps to take in order to find funding for your business:

 

1. Calculate how much funding you need 

Before you can ask for funding for your business, determine exactly how much money you need. Calculate the costs for materials, a workspace, staff members and anything else you may need to start and run your company.

 

2. Develop a business plan 

Regardless of where you get your funding, you need a business plan to show lenders and investors. Include the following:

  • Your vision
  • Why the business will be successful
  • Your plan for growth
  • Any competitors or potential risks involved
  • How much funding you need

This information shows individuals and institutions why investing in your business or loaning you money is a low-risk, high-reward decision.

 

3. Find an investor or lender

Once you have a comprehensive business plan in place, decide where you plan to get the funding from. Research the interest rates and assess the risks involved with each option. Ultimately, the decision is up to you and depends on your business and goals.

 

4. Share your business plan 

After you decide on your preferred method for funding, present your business plan and any other information that investors request. Lenders usually ask for access to bank statements and financial information for you and your business.

 

5. Negotiate the terms for the investment or loan

If they decide to invest or lend you the money for your business, the next step is to agree on a set of terms and conditions. For an investment, terms and conditions usually involve ownership percentages, the amount of input they are allowed to have in daily operations and their overall function in the company. For a loan, the terms and conditions involve interest rates and the term of the loan.

Related: How to Grow Your Business

 

Business funding FAQs

Here are some answers to frequently asked questions about business funding:

 

How can you get business funding if you have a low credit score? 

If you have a low credit score and are looking for funding for your business, consider securing funds outside of lending programs and credit cards. Even though there are options designed for people with poor credit, they usually come with a higher interest rate to make up for the risk. A lternative options could help those with low credit scores, including:

  • Home equity: This line of credit is useful when you have poor credit, but it comes with a fair amount of risk. When using a home equity line of credit, you put your house up as collateral in exchange for a loan.
  • Family and friends: Asking friends and relatives for a loan can be a great way to secure funding for your business despite your credit score.
  • Microlenders: There are nonbank lenders online and through most states that offer small loans, usually between $5,000 and $25,000, to entrepreneurs. The interest rates for these loans tend to be high, but the repayment plan can be flexible.
  • Gifts and grants: Aside from looking into government grant programs to fund your business, gifts are a great way to minimize your startup costs. When looking for gifts, consider options other than actual money. Make a list of individuals who would be willing to offer free services, free office space or free supplies to help you in your business venture.

 

How can you find investors to fund your business?

You can often find investors by:

  • Checking with a local university that has a strong entrepreneurial or business program. These institutions usually have a network of guest speakers, alumni and faculty who serve as investors.
  • Asking friends or fellow entrepreneurs in a similar industry for recommendations.
  • Searching for angel investors online.
  • Connecting with a mentor who can guide you through the process and possibly introduce you to investors.

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