Attention: You are now leaving a Wintrust Community Bank website.
Read articles about finances, saving and community news.
Our team of experts is ready to help you manage your wealth.
Access all the commercial banking resources your business needs to succeed.
by John Hawthorne
March 15, 2018
by John Hawthorne
March 15, 2018
You’ve decided it’s time. Years of planning and hard work are coming together in a business plan for your future. You’ve dreamed of starting a business for years, and now you’re on the verge of making it a reality. You can hardly contain your excitement. Whether you’re selling a product or service, you’ve got a lot to offer the world.
But for entrepreneurs, the best business plans can be thwarted by a lack of start-up capital.
At some point, you’ll probably find yourself asking: where do I get capital to make my business a reality.
Learning how to get funding for a start-up business is the first step to making a business successful. So, what’s necessary to start a small business? How do you determine how much capital you need? Where can you get that capital?
Let us break it down for you.
The first step is estimating what your start-up costs will be. Are you planning for a web-based business or a brick and mortar business? Will you have a small staff or an extensive staff with various departments? Will you need to lease or build your offices? What equipment is needed to run your business? What business licenses, insurance policies, or start-up documents will you need? The list goes on and on.
Once you have determined the answers to these questions, you must research the costs for equipment, salaries, marketing, supplies, and dozens of other start-up costs. It’s very easy to overlook things like a photocopier, costs for internet service, hook-up fees for utilities, monthly fees for security, etc.
Be sure you have included all the everyday, routine supplies, and equipment that you will need to run a successful business. Start-up capital examples vary depending on the type of business you seek to start.
If possible, do some research to find people who have already started businesses like yours. Ask them what their startup costs were. What unexpected costs did they encounter?
If you are looking to start your very first business, it is a good idea to minimize your financial risk. There are many business opportunities out there with minimal start-up costs, thus minimal financial risk. Small Biz Trends offers a list of 25 businesses that can be started up with $100 or less:
These types of businesses are perfect if you’re just beginning your entrepreneurial career. The monthly costs are minimal, the barriers to entry are small, and you don’t need to get any sort of loan to get started. Additionally, some of them can be started by anyone.
There is no one best way to get funding for a small business. There are multiple types of business financing options available.
One way to finance a start-up business is by approaching a bank for a start-up capital loan. While this is a typical method for funding a new business, investors are also a good place to start. There are thousands of businessmen and women who are always looking for a business to invest in.
The positive of securing a private investor is that they share the financial risk with you. Having a stake in the business gives investors the motivation to make sure you have everything you need to make the business successful.
Another option is Individual Development Accounts (IDAs). These are grants with strings attached. IDAs are savings accounts that match the deposits of individuals with modest means. For every dollar saved in an IDA, savers receive a corresponding match. Savers agree to complete financial education classes and use their savings for an asset-building purpose, such as to capitalize a business. Requirements will vary by location.
Another possibility is forgivable loans. This type of loan is made with the understanding that if the borrower meets certain requirements, repayment of the loan will not be required. A forgivable loan is actually a grant; but, a stipulation may be that you are required to hire and train employees, for example.
The US Government also offers grants for new entrepreneurs. It is always in the government’s best interest to help improve the economy by creating new businesses, as those new businesses create new jobs. These grants offer small business startup financing for qualified applicants. You can start by searching Grants.gov and filtering for small business grants specifically.
The U.S. Department of Commerce’s Minority Business Development Agency (MBDA) recently announced $7.8 million in funding for 27 MBDA Business Centers (MBCs). These centers help minority firms with access to markets, contracts, capital and other strategic business consulting services.
Many capital investment groups, as well as the US government, offer grants specifically for female entrepreneurs. These grants encourage women to become business owners, which creates a more diverse workforce.
In fact, there are specific grant programs and business competitions geared towards women. Leah Brown, founder and president of A10 Clinical Solutions in Cary, N.C., was named a Make Mine a Million $ Business winner in the 2007 competition. Make Mine a Million $ Business is sponsored by OPEN from American Express and Count Me In for Women’s Economic Independence, a national not-for-profit provider of resources, business education, and community support for female entrepreneurs.
Where specifically can women look for financing?
Grants.gov is a database of all federally sponsored grants. You can search for small-business grants here but filter the results on the left side of the page for grants specific to small business.
2. InnovateHER Challenge
The U.S. Small Business Administration hosts an annual competition for businesses with a marketable product or service that positively affects women’s lives. To participate, you must first enter and win a local InnovateHER Challenge to advance to the national semifinal round. The top three national finalists will win $40,000, $20,000 and $10,000, respectively.
3. Small Business Innovation Research and Small Business Technology Transfer programs
The SBA facilitates these two competitive programs, which ultimately provide grants to small businesses that contribute to federal research and development. Eleven federal agencies, including the departments of Agriculture, Defense, and Health and Human Services, post grant opportunities on their websites. You can search all grant opportunities on the SBIR website.
4. Women’s Business Centers
The SBA sponsors about 100 Women’s Business Centers nationwide, designed to help women entrepreneurs develop businesses and access capital. Some lend money directly, while others help you find small-business grants and loans.
5. Economic development agencies
Every state and many cities have economic development agencies focused on promoting a strong local economy. Though the agency itself may not offer grants, it will be able to point you in the right direction.
6. Small Business Development Centers
There are hundreds of these SBA-sponsored centers around the country, typically located at colleges and universities. SBDCs offer free, one-on-one business consulting. Your local SBDC advisor will be able to tell you about grants and other business financing opportunities in your region.
7. Amber Grant
The Amber Grant Foundation awards $500 to a different women-owned business every month. At the end of each year, one of the 12 grant winners is awarded an additional $2,000. The foundation’s advisory board chooses the winners based on a woman’s passion and background.
8. Eileen Fisher Women-Owned Business Grant
Eileen Fisher, a women’s clothing retailer, awards $100,000 to up to 10 women business owners each year. To be eligible, women must make up at least 51% of your business’s ownership and leadership, your business must have been in operation for at least three years, it must not exceed $1 million in annual revenue, and it must be focused on environmental or social change.
If looking for grants or investors has not worked out for you, there are additional ways to secure capital funding for your business. In fact, the question of how to fund a business with no money can certainly be answered.
Many entrepreneurs worry about the ability to get capital to start a business with bad credit. If bad credit is an issue for you, begin by exploring start-up business funding websites. Fundera Ledger offers a list of 106 verified small business grants.
Microloans are also an option. Poor credit history is a barrier for many entrepreneurs seeking traditional financing. ACCION USA is a microfinance institution lending to 48 states across the U.S., providing loans to start-ups, especially women and minority businesses.
ACCION New York is one of hundreds of regional and national nonprofit groups that make microloans from as little as $500 up to $35,000. Many of these groups are funded by The U.S. Small Business Administration. ACCION USA has provided over $119 million in over 19,000 microloans since inception in 1991.
Crowdfunding could also work. Sites like Kickstarter and Indiegogo provide the perfect platform for businesses to locate funds for a new startup. Crowdfunding has exploded in popularity, getting attention from investors and businesses. But all of this popularity also means an increase in competition, so your business must capture the attention of the potential investors.
You could also try to locate an Angel Investor. Angel investors continually search for the next great idea. However, these investors have an ulterior motive. In return for your funding, you’ll usually be asked to promise a sizable chunk of your company. If you’re comfortable exchanging equity for financing, an angel investor could be a great solution
Another option would be to consider Factoring. Factoring is a financing method where a company sells its receivables at a discount to get cash up-front. It’s often used by companies with poor credit or by businesses such as apparel manufacturers, which have to fill orders long before they get paid. However, it’s an expensive way to raise funds. Companies selling receivables generally pay a fee that’s a percentage of the total amount.
One of the riskier options is to tap into your 401(k). If you’re unemployed and thinking about starting your own business, those funds you’ve accumulated in your 401(k) over the years begin to look like a viable option. Thanks to provisions in the current tax code, you can tap into them without penalty, if you follow the right steps. The steps are legally complex, so you’ll need someone with experience setting up an appropriate corporation and the right retirement plan to roll your assets into.
If none of these options work, you can always ask friends and family members if they are interested in investing with you. But, be careful. It is important that everyone understands that this is a business proposition and make sure everyone signs the appropriate paperwork that clearly defines their investment, their role in the business, how they can sell their share if they want to leave the business, and what penalties they will incur if they do not meet the requirements of their business contract.
Starting a business requires commitment, research, planning, and sacrifice. However, finding the capital for a new business is not impossible. With the resources you see here, you can find your funding and begin your journey as a successful business owner.
Don’t let lack of funding keep you from starting your dream business. Your future is in your own hands. Take the right steps and you could be on the path to creating a business that will stand for years to come.