Small Business Funding Sources

There are many small business funding sources available to you when you need to raise money for your business. Depending on the stage and the potential of your business, you can raise money from the following sources:

• Personal savings. When you start up your own business, your first source of capital will probably be your own savings and those of friends and relatives. The NBA advises drawing up a formal agreement when pledging collateral, viewing the participants as business associates.
• Private investors, such as accountants, attorneys, and other professionals, looking for higher investment returns than they might obtain in traditional markets.
• Partners. Taking in additional business partners either in the form of fellow incorporators or limited partner is another small business funding source. In this situation, your partner is strictly a financial backer. He or she will want to see a return on investment but will not want to participate in any of the work of the company.
• Business loans. Not all banks offer loans to small businesses. Typically, a bank will loan money to a client if the client has collateral or has impeccable personal credit qualifications or can repay the loan with any ongoing income from other than the start-up business.
• Personal loans. You can also get a loan in your name as opposed to the business name. Personal loans include:
  • Home equity loan. The interest rate is usually fixed.
  • Home equity line of credit. The interest usually changes as market interest rates move up or down over time.
  • Personal installment loan. These loans are usually for more modest amounts of money and are usually required to be repaid within five years.
• Venture capitalists: individuals or organizations that invest in companies deemed worthy of growth and profitability. They usually want equity of a business in exchange for money. They are interest in sharing the venture and having input with regard to the business management.
• Federal, state, and local government agencies.
  • Small Business Administration. The SBA offers numerous small business funding programs. It is important to note, however, that the SBA is primarily a guarantor of loans made by private and other institutions.
  • Sometimes foundations and government agencies offer grants and incentives to small businesses. Local governments sometimes offer utility-rate and property tax incentives for small business who employ locals.
• Retirement funds. The Employee Retirement Income Security Act (ERISA) was passed in 1974, and in 1975 IRAs were created to provide individuals a chance to direct where their retirement funds were invested. According to ERISA and IRA Codes, there are only two types of investments that are not permitted under these laws: Life Insurance Contracts and Collectibles such as works of art, rugs, jewelry etc. Through some IRA custodians, you can invest your retirement funds in a business.