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Unfortunately, most grants are for nonprofit organizations, not small businesses. BE VERY CAREFUL of advertisements promoting “free money for your business.” These ads can be very misleading, often suggesting that you can receive a list of many grant sources for a fee of a few hundred dollars. Usually, this is a list of microloan programs - which you must repay - or grants for nonprofit agencies.
However, the federal government does offer a few very competitive and targeted grants to companies developing various technologies. Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grants fund research and development efforts of a high risk nature that may have excellent commercial potential. Small U.S. businesses are eligible to participate in the SBIR/STTR program if they are for-profit and have 500 or fewer employees. Nonprofit organizations are not eligible.
You, your family and friends are the stars of this stage. Think personal savings, a home equity loan, borrowing against your insurance policy as a start. The following articles give some timely tips on using personal resources to fund your business.
Commercial bank loans don't require entrepreneurs to turn over equity or company control. In general, banks prefer to make loans of more than $10,000. Banks like to see:
Government low-interest loans are ones that local municipalities provide in partnership with a financial institution. Usually the government issued loans are at a lower interest rate and therefore create a lower blended rate with the financial institution. In most cases, these government loans can be used in similar ways as traditional financing (i.e. land purchase, equipment and working capital).
Line of Credit is an arrangement in which a bank extends a specified amount of credit to a specified borrower for a specified time period. A line of credit is best suited to help cover expenses that tend to fluctuate throughout the course of a year.
Home equity loans are a cost-effective alternative to other types of loans because they offer good interest rates available. But you may not want to risk your family home to launch your business venture.
Equipment lease financing gives you access to many types of equipment - computers, copiers, fax machines, cars and trucks - without tying up your cash or credit lines. Although it doesn't bring in cash, leasing reduces the amount of cash you otherwise have to raise to start.
Cash advances from credit cards are an easy and quick way to gain access to cash. But as a long-term financing method, they can be expensive - credit card interest rates typically run much more than you would likely pay on a bank loan.
Factoring allows a company to "sell" its accounts receivables to an outside company at a discounted rate. This allows the company to receive funds immediately to fund operations and ease cash flow. Factoring is done by private companies.
Once you've determined that an SBA or traditional bank loan is the right kind of financing for your business, you'll need to package your financial information in a way that makes it easy for a banker to make a favorable decision. At the most basic level, you will need to provide:
We highly recommend that you work with one of our GPSourceLink network Resource Partners, like the Small Business Development Center at Bradley University, who are skilled in helping business owners prepare themselves to approach funding sources.
The SBDC can help you pull together the following financial information:
Established businesses will need to provide three years of profit and loss statements. If you are a startup, you will need a short business plan summary.
If you plan on applying for an SBA loan, we recommend contacting our GPSourceLink Network Resource Partner, Illinois Business of Financial Services (IBFS). IBFS is a SBA approved Certified Development Company (CDC) and has been accredited by the Better Business Bureau. It is a trusted partner that provides financing to small businesses through the SBA 504, 7(a), and Express Loan Programs. Loan professionals will guide you through each step of the loan process and provide you with educational and financial assistance. More information about IBFS and how IBFS can help your business can be found on their website.
Angels give wings to entrepreneurs. They provide seed money to business startups - to the tune of tens of thousands to a million dollars or more - in exchange for convertible debt or ownership equity. Some angel investors come together to form angel groups or angel networks to share research and pool investment dollars.
Venture capitalists (VCs), on the other hand, usually make their capital investments later in the business cycle. They exchange their investment and their expertise for a significant portion of the company’s ownership and significant control over company decisions.
Before you approach an angel investor, angel network, or VC firm, ask yourself and your partners these questions:
You’ll need to follow those answers with a solid business plan and an executive summary that includes:
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