End Goal: Understand where your funds will be coming from #

With your business plan done, you should have a good idea with what you need to start your company.  You do not need to secure funding just yet, but it is important to know where it is going to come from.  

Self-Funding: #

If you just have enough, it may be tempting to self-fund. Be war y of funding projects entirely on your own.  There is no shame in taking a loan or bringing on investors.  You may have a solid business idea, but you can do everything perfectly and still lose.  You do not want to put yourself so far into debt that you cannot recover.  Credit cards are the most dangerous.  High interest rates can eat up your starting cash flow and you can really struggle to recover. 

However, if you are certain then feel free to move on to Step 2.

Investors: #

It is very common for small businesses or start ups to accept investors to get the initial capital needed.  Banks, even with help from SBA, will not always lend to businesses if the owner has poor credit or no collateral, so investors may sometimes be necessary.

1. Types of Investors – There will be pros and cons for any type of investor, and due to how variable your specific situation is we won’t be able to give an exhaustive list. Make your own pros and cons list if you are weighing options.
   1. Friends and Family – These are usually the first people to invest in small businesses or startups.  A pro might be easy access but the con is money can ruin relationships so take money from friends and family cautiously.
   2. Angel Investors – An angel investor is an individual or other businesses who provide the initial seed money for starting a business.  They are typically in a similar industry and have sufficient capital to invest.  Some pros are that typically this isn’t there first investment so they will have some knowledge or experience to share.  They also have a vested interest in your success.  A con would be that they are harder to access.
   3. Venture Capital – This is more common for tech startups but they sometimes branch out.  VC firms raise money from limited partners to invest in startups or small businesses. A pro would be similar to angel investors, they typically have multiple investments and have experience. A con would be that they do typically stay within tech spheres so it could be difficult if you aren’t related to technology.
2. Investment Types – If an investors gives you money for your business they expect some type of compensation in return
   1. Equity Share – A common way to reward investors is a share in the business.  Said another way, it’s giving a piece of your business for capital.  The investor is rewarded based on profits from the company.  
   2. Profit Sharing – A different path to reward investors is to give a share of the profits.  It works similar to an equity share but the investors do not actually own any of the business, they only share in the profits.
   3. Royalties – Different from a profit share in that investors are rewarded a fixed amount based on sales.  They can receive a percentage or a fixed amount per sale. As a quick example, it could be $1 on every purchase of your product goes towards the investor
      • With royalties as well as profit sharing it is good to think about whether or not it will last for a certain time period, return a certain amount back to the investors, or continue into perpetuity.  
3. Attracting Investors
   1. Pitch Deck – A pitch deck is a condensed version of the business plan.  You want to condense down the financials into the most important numbers and reiterate the brand and sales approach to attract investors.  Once you get the investor interested with the Pitch Deck then you will provide them with the full business plan.
   2. Networking Events – Industry events are a great way to meet people in the same or similar industry.  There are also plenty of startup and general networking events that may be worth attending.  Look for events in your area. 
   3. Social Media – Not only a great place to connect with potential customers but a good place to get seen by investors.  This may be tougher for startups or initial investments.
   4.  Accelerators or Business Hubs – Accelerator programs have become more popular in recent years.  They typically have events that give small businesses the chance to pitch to a crowd of investors.  (Note: this is more common with tech startups but there may be other ones out there.)
   5. Cold Email or Cold Call – It is surprising how a simple email or phone call can get the attention of notable angel investors or VCs.
4. Crowdfunding – This method has become more popular in recent years.  Raising money from many people.  You can use one of the many popular options including Kickstarter, Fundable, and others.s
5. SBA Loans –
   • Types of SBA Loans
     • The SBA has different loan programs for different business needs. These include the 7(a) Loan Program, the CDC/504 Loan Program, and the Microloan Program. Each program has its own rules about who can apply, how long you can borrow the money for, and what you can use the money for.
   • Loan Uses
     • SBA loans can be used for different business needs, like having money for everyday operations, buying equipment, getting property, paying off old debts, and growing or buying more businesses.
   • Interest Rates and Fees
     • SBA loan interest rates are usually good, and they can stay the same or change over time, depending on the loan and the lender. Also, you might have to pay some fees upfront and keep paying fees while you have the loan.
   • Application Process
     • Getting an SBA loan means filling out forms, giving plenty of info about your business and money, and providing papers to prove why you need the loan. How you do this can be different depending on who you’re getting the loan from and what kind of loan it is.
   • Use of Proceeds
     • You have to spend the loan money on what you agreed to in the loan papers. The SBA might ask for proof that you spent the money the right way.
   • Eligibility Criteria
     • To get an SBA loan, your business needs to meet specific requirements. These include being a for-profit operation, working in the U.S. or its territories, and fitting into the SBA’s definition of a small business for your industry.
   • Loan Terms and Amounts
     • SBA loans often let you pay back the money over a longer time and ask for less money upfront compared to regular bank loans. You can borrow from a few thousand dollars to several million dollars, depending on the program and how good your business looks to the lender.
   • Collateral and Personal Guarantees
     • SBA loans usually need something valuable to back them up, like property or equipment. But sometimes, the SBA might also want a promise from the business owner who owns the largest share of the company.
   • Approval and Funding
     • After you send in your loan application, the lender will review it, see if you’re good at paying back loans, and decide if they’ll give you the money. If they say yes, they’ll put the money in your business bank account, and then you start paying it back like you agreed to.
   • Repayment
     • You have to pay back the SBA loan like you promised in the agreement. This means making regular payments of the money you borrowed plus interest. If you don’t pay back the loan, it’s called default, and it can cause big problems for your business and your personal financial situation.

Bank Loans: #

Typically you can get a better rate than an SBA loan but you have to have collateral to get a bank loan.  You also need to have good credit.  Typically banks will lend between 70-80% of the value of assets, though you can sometimes get funding of up to 100% on equipment.