What is the Best Way to Get Small Business Funding?

Guaranty Bank & Trust

November 24, 2020

You have a great idea. You have a vision. Now you just need the money to get it off the ground. This is where small business funding can give you the boost you need. There are many loan options available that can help you start your business or take your business to the next level.

Evaluate your need
The first step to getting small business funding is figuring out why you need money and how much you need. A well-thought-out business plan will be a good starting point in determining the cost of equipment, services, staffing, and marketing and sales. From there, loans are available based on how much you need and why. Is it to manage day-to-day expenses before you start to draw a profit? Or is funding needed to grow your business to the next level? Having a firm idea can help you present a solid case to a lender and also prevent you from borrowing too much – or too little – in order to meet your goals. It will also give you a good idea of your overall financial picture to make sure you do not get in over your head.

Funding options
From there, there are a variety of paths to take to get funding. Many people first turn to their own assets – savings accounts, certificates of deposits, money market accounts, or even their homes. They also might draw on their personal credit cards or lines of credit. They might also seek support from friends and family, either in the form of a loan or an opportunity to be front-line investors.

One funding source that is gaining in popularity is crowdfunding. Crowdfunding is an online vehicle to raise money from potential investors. It involves setting up a crowdfunding campaign by creating a profile for your business, project or service. Then you set a funding a goal and publish your request. People who are intrigued by your idea can donate to your cause in exchange for some level of ownership of your business assets. Crowdfunding provides an opportunity to not only attract investors but market your business at the same time. Another benefit is that because the funds are actual investments in your business you do not have pay anyone back or worry about interest rates.

The next place to look is at Guaranty Bank. While a bank loan often requires good credit and collateral, it may have loan programs and services your business can quality for, or it can be a resource to point you in the right direction. Banks are also often part of the local structure of a community, so they may have an interest in economic development and its impact on other businesses. Based on this, banks are a good starting point. And, as your business grows and you establish more of a relationship with the bank by accessing other business products like a business savings account, business checking account, or overall business services, you will improve your ability to get future funding from the bank if you need it down the road. This can include future business loans, a business credit card, or a business line of credit.

Credit unions are another source of small business funding. They can offer favorable rates and loans backed by the Small Business Association. Credit unions also are community-minded and have a cooperative structure that can make them conducive to lending to new enterprises. In fact, credit unions have increased their lending to small businesses by 60% since 2008. Online lenders who operate exclusively through the Internet are another option. These lenders may have lower credit criteria and may be optimal for people on a tight timetable funding.

One popular way to find small business funding is through the Small Business Administration or SBA. These loans are available through the SBA directly or through certain financial institutions and lenders. These loans often feature flexible terms and low interest rates, which are possible because the loans are guaranteed by the federal government. The SBA can guarantee up to 85% of loans of $150,000 or less and 75% of loans of more than $150,000.

SBA loans vary in rates and availability, and there are different loan terms based on how long you plan to use the money. For example, SBA loans for working capital or daily operations are seven years, for new equipment purchases, they are 10 years, and for real estate purchase, they are up to 25 years. To start the SBA loan process, the best approach is to contact the SBA, or to go through your bank or credit union. In doing the application, you will need a statement of personal history, personal financial statement, personal and business income tax returns for the previous three years, business certificate or license, a copy of your business lease and a loan application history.

There are also sources of actual free money out there if you have the time and patience to go through the processes. Government agencies provide a number of small business grants. These can be in the form of federal, state, regional funding for ideas that support economic growth and encourage entrepreneurship and innovation. Also, many corporations and large companies offer small business grants as part of their philanthropy and corporate responsibility programs.

Once your business is established and turning a profit, more money may still be needed. For businesses looking to reach the next level of growth or meet ambitious revenue goals, funding through angel investors or venture capital organizations may be an option. Angel investors are affluent people who either on their own or as a group provide capital to businesses, usually in exchange for some level of ownership of the business. Venture capitalists work in much the same way, but their goals for the transaction may be to build and grow your business so that it can be sold at a higher value.

When it comes to starting or growing your business, there is money out there to get you going. The trick is choosing the right source in the right option with the right borrowing terms. Contact Guaranty Bank today about small business funding programs and which one might be the best fit for you.