NCET helps you explore business and technology.
Previous articles in this series provided the groundwork for preparing for your new business and planning ahead to avoid costly mistakes. Once you know that you definitely want to start a business, and you have a plan, a description, your business name and your legal entity, you’ll want to find the money to start your business.
Sometimes, if you start a business initially as a side gig or a hobby, it’s self-funded. The money comes from your paychecks, your savings, a home equity loan, or even a line of credit from our bank. The money could be in a property you plan to sell, or stocks, bonds and other assets that you can use to start your business. Your side gig or hobby could turn into a fully-fledged business and you may simply need to explore additional sources of financing. And sometimes you may not have the entire amount needed to start the company on your own and you’ll need assistance.
There are numerous sources that you can then approach including family, friends, business partners, shareholders, lenders — both large and small — and specialty funding for disadvantaged and culturally different businesses.
Friends and family are always the easiest, and are often the most supportive people who know you; however, this source of income can come with strings attached, and can make conversations at future holidays difficult. Many business owners resist mixing business and family. If you borrow from friends and family, make sure that the money is tied to an official, written loan document with formal interest and payment terms. This preserves the true separation of the family from the business, and it also makes sure that no one represents themselves as your “partner” unless they truly are. And make sure that you are clear what the interest rate and repayment terms are. Sometimes, friends and family are willing to accept an equity position in your new business. This means that they own a portion of your company, and that percentage needs to be decided on and documented prior to the cash transfer.
While I have rarely seen a bank or a credit union make a loan for a new business start-up, they are on the list of places to visit for possible financing opportunities. Interestingly, a denial from a bank is often a prerequisite to apply to a micro-lender — which makes small business loans easier. Try your personal bank first. They will ask for a formal application, your start-up financial projections and how you are going to use the funds that you borrow. They will ask how much you need and for what purposes. You will want to share with them a formal list of your start-up costs and if you need any money for your operation expenses during the first year. Your start-up expenses should be itemized by your specific needs: deposits, purchase of machinery, equipment, licenses, professional, marketing fees — those monies that are necessary before you start selling. Your operations budget should highlight if you will need money until your business starts making a profit — maybe six months, a year or two.
If the banks turn you down, then ask a micro-lender, which is a lender with a micro-lending program which generally offer loans up to $50,000. This type of lender, often community based, can help underserved or disadvantaged business owners with micro-loans, small business loans and SBA loans. These lenders include:
- Prestamos – www.prestamosloans.org/lending/small-business-loans
- Rural Nevada Development Corp – www.rndcnv.org
- Western Nevada Development District – www.wndd.org
You might also consider group funding sites, which allow you to easily share your funding needs via social media. Although they do take percentages of the funds you raise, the process is relatively quick and painless. Here are two of the major sites:
Seed funding is another source of financing, where an investor offers funding in exchange for a portion of your equity. Each has their own criteria for applying and you can find more details on their respective websites. Here are just a few of the local seed funds, and you can find more at www.startupreno.org/resources/investors.
- InNeventure Fund – www.nvric.org/inneventure-fund
- Ozmen Ventures – www.ozmenventures.com
- Reno Seed Fund – www.renoseedfund.com
- Sierra Innovation Fund – www.sierrainnovations.net
Angel financing and Venture Capital (VC) funding is also provided by experienced investors and investor groups who may contribute considerable funding for businesses they feel will provide a large return on their investment. Local angel groups and VCs include:
- Advantage Capital – www.advantagecap.com
- Battle Born Ventures – www.battlebornventure.com
- Sierra Angels – www.sierraangels.com
- Silver State Opportunity Fund – www.nvssof.com
Obtaining financing may seem daunting and time-consuming, but the lack of funding shouldn’t stand in the way of launching a great business idea. Give it a try and see where your loan inquiries will land — often with great support of like-minded entrepreneurs!
Marie Gibson, accounting rescuer, Gibson & Associates, LLC, helps business owners create, fine-tune, and actually use their accounting systems to earn profits with certainty in uncertain times! (www.Marie-Gibson.com)
NCET (www.NCET.org) is a member-supported nonprofit organization that helps people explore business and technology.