Small Business Capital
Raising funds for your small business
Regardless of the size of the business, most new business owners cannot finance their venture without some help. If you can show that your business has good earning potential, you will have several funding options. From bank loans to private investors, discover the important aspects of funding your business, and what to expect when the time comes for repayment.
Forms of Start-Up Capital
When planning to launch your small business, there are plenty of sources to consider when you need to obtain small business start-up capital. Once you have created a meticulous business plan and determined how much financial help you will need, survey the range of loans and grants that may be available to you. Banks are a good choice for small business loans, but you must ensure that you can generate enough cash to make your monthly loan payments. You can also check out the U.S. Small Business Administration to apply for government funding.
A business capital investment can come in the form of private funding, such as a donation from an "angel" investor or the generous support of friends and family. If you do decide to borrow from a friend or family member, try not to take advantage of your personal relationship. Instead, treat any affiliation with an investor or lender—professional or familial—as a business relationship in order to avoid any rift that may result from financial favors.
Another way to finance a new company is to acquire venture capital, a very specific type of funding where an investor provides money to a high-risk company that shows potential for high growth. Of course, the investor will need to make a profit—they will expect either a percentage of the company's equity (net worth) or repayment through the sale of the company, and may also demand a position on the board of directors.
Venture capital comes in a few different forms: seed financing refers to a modest amount of small business capital given to an entrepreneur to begin a business; first stage financing helps businesses to increase their size and production for the public business arena; and expansion financing is used to expand companies that are beginning to show a profit.
A goal of any small business is to achieve positive working capital, which indicates that the assets of the business are greater than its liabilities, and venture capital can be a great way to get there fairly quickly. However, most new small businesses face a bumpy road ahead, so work hard and remain optimistic—it may take a few years before you can achieve positive small business working capital.