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Find the Right Biz for You Series (Part 10) Welcome to Episode 11 of the Small Biz 101 Podcast – The 10th and final episode of the Find the Right Biz for You Series. We’ve covered quite a bit in past series episodes: Self-assessment Generating business ideas Business styles Business cautions Research - Is your idea a viable one? What will your business idea cost? Now that you have an idea of the business costs, where will that money come from? In this episode, I cover the following sources of funding: Self Family, friends, associates Debt financing Grants Equity financing Crowdfunding Self-funding Funding the business with the owner’s own money is the #1 source of financing for most small businesses. It’s also the one I almost always recommend for my small business clients, if they can swing it. Where might your money come from? Inventory your assets You may find you have more assets than you thought. Perhaps, an investment account that’s skyrocketed with the market the last few years. You may find assets you can sell to support starting up your business. Savings From what you currently earn Consider moonlighting for the sole purpose of saving for your new business Personal credit cards If you go this route, be sure to get the lowest credit card rate possible and NEVER be late or miss a payment, as often those rates go up with one missed/late payment. If using a currently-owned credit card, call the card company and ask to have your rate lowered. If using a new card, get one with the lowest rates. Check out these sources to find current offerings for hundreds of cards: bankrate.com, creditcards.com, www.lowcards.com Home equity loan There may be tax benefits to going this route and usually the rates are lower than from other sources. Be sure you will be able to pay it back or you could lose your home. Borrow against retirement 401(k) accounts Last choice source of self-funding. If you go this route, pay it back as quickly as possible. If you lose your job, you will be required to pay the total amount back within a very short period of time. You also will be double-taxed on the money as you pay back the loan with already-taxed money and have to pay taxes again when you withdraw the funds at retirement. Family, Friends, Associates People who know you and your work ethic and who like your idea often may be willing to support you. Here are some guidelines to follow: Never ask someone for money who you know may already be in any kind of financial trouble. If, for some reason you can’t pay them back, you’ve not only put your financial situation at risk, but you’ve harmed someone else – someone very important to you. Keep it professional. Like with any financial transaction, keep your interactions business-like. Give the person loaning you money your complete business plan and review in detail the financial section. Keep the emotion out of the interaction and don’t use your relationship as a way of “guilt-ing” someone into supporting you. If the person you have approached declines to help you, accept their answer graciously and move on. Do not let this hurt the relationship. Be sure to put the terms of the arrangement in writing. Include how much you will be borrowing, for what purpose, and what the terms are for paying the loan back. Sometimes it makes sense for you to give your personal connection a percentage interest in your new business in exchange for their money. This may provide tax advantages for the lender and it can incentivize the person to loan you money knowing that if the company takes off, their investment will increase in value. Keep the person updated as to how things are going with the business, even if your news is not as positive as you would like. It’s always better that they know the truth. Pay on time and as you agreed upon. Stick with your end of the deal. Debt Financing This is a loan made to you by a bank or commercial lending organization that must be repaid. There are hundreds of different types of loans for businesses. The following are some of the most often used by small businesses SBA Loans The Small Business Administration acts as a go-between for you and various lenders who participate in SBA programs. To explore SBA loans, click here. Line of Credit Loans If you have your business checking account with a bank, your bank may provide you with a line of credit for that account. These are short term loans intended to protect businesses in case of emergency or stalled income flow. When using your line of credit, money is transferred into your checking account up to a particular limit. Standard Commercial Loans These are your regular installment loans. A terrific free resource for finding these types of loans is www.C-loans.com. This website allows you to apply for loans with multiple lenders at one time. Loans may be secured with collateral or may be unsecured. Unsecured are more difficult to obtain and typically have higher interest rates than secured loans. The following are typical sources of these loans: The government provides small business loans at the federal, state, or local levels. A terrific “wizard” that walks you through various offerings to find those best suited to you is available at business.gov. Often banks offer loans for small businesses. Keep in mind that, if you live in a smaller community, you may have more success obtaining a start-up loan from a community bank with people who know you, rather than from the larger banks. Commercial finance companies also offer loans to small businesses. Of course, with any of these sources, you will need to have all of your  financial information (business AND personal) in order. It also helps for the lender to see that you already have committed a substantial amount yourself to the new venture. Grants While we often think of grants as being only for non-profit organizations, there are many grants available to for-profit businesses. Organizations with a focus on social or environmental benefits and certified as B-Corporations are most likely to be able to obtain grants for their work. Check out www.grants.gov for more information. Grants also may be available at the local community level. Look into your local small business administration office. help community development or a specific group of disadvantaged individuals. Equity Financing This occurs when someone gives you money and, in exchange, you give him/her equity – a percentage interest in your company. Think Shark Tank or The Profit. The upside means you have more capital to work with. The downside is that your ownership and control is diluted. If you enter into an equity financing arrangement, be sure to consult with financial and legal experts to ensure this is set up correctly. Venture capitalist firms These typically invest in large ventures and stay away from small businesses. Angel Investors These most typically are individuals who invest in your company. For a great story on how NOT to approach an angel investor, check out the first episode of the Start Up podcast called “How Not to Pitch a Billionaire”.  Angel investors do not have to be billionaires, or even millionaires. They could be the neighbor next door who is really excited about your business and has a few thousand dollars they are willing to invest. Think creatively here. You may have a potential angel investor in a company that offers complementary services to yours, or a supplier, or even a potential customer.If you can’t think of someone connected with you, you may want to consider looking into a service that matches angel investors with people/businesses searching for funding. Two excellent sources for this are: www.go4funding.com and www.angelcapitalassociation.org. Crowdfunding This source of funding has become huge in recent years. There are three types of crowdfunding: Reward crowdfunding In exchange for people providing financial support to you, you provide some type of reward like a free product or product sample. The most well known sources of reward crowdfunding are: Indiegogo, Kickstarter, and Gofundme. For people in the arts or anyone who considers themselves a “creators, Patreon is a terrific resource to explore. Debt crowdfunding In this situation, backers provide a loan to you or your organization. It is usually faster and easier to qualify for a loan through debt crowdfunding than through a bank. Two major debt crowdfunding sites are Lending Club and Kiva. Equity crowdfunding At this point, I’m sure you can guess that this is where you give away part ownership in your business for funding. Angel List is one of the equity crowdfunding sites that has been around the longest. For more information on the top 25 crowdfunding sites, divided up by type of crowdfunding, check out this article by Fit Small Business: http://fitsmallbusiness.com/best-crowdfunding-sites/ Next Episode Top free or low-cost business development resources for small business owners or want-to-be business owners. Free eBook: Passion to Prosperity: Finding Your Ideal Side Business If you would like more information about how to find your ideal small business, please help yourself to a free copy of my eBook: "Passion to Prosperity: Finding Your Ideal Side Business". Although it was written with side businesses in mind, the process for determining your own small business is very much the same. Ask Your Questions or Share Your Feedback In the comments section of these show notes. 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