An Essential Guide to Small Business Funding
Contributed by Megan Webb-Morgan
You hear it everywhere: fifty percent of small businesses fail in the first five years. It can get discouraging to hear that statistic quoted so many times while working day and night to get your small business up and running.
According to Michael Ames in Small Business Management, one of the top reasons why small businesses fail is due to insufficient capital. So, to ensure your startup’s success, be sure to acquire sufficient capital and stretch your budget to keep costs down. From the standard small business loan to your great aunt, be sure you’re making the right choices.
Friends and Family
Your friends and family are the first people you’ll approach about funding your new business. Research reported by StartupSmart found that the most frequently used source of startup capital for small businesses was owners’ and relatives’ savings and assets.
- Always be open about your expectations from them, and have them do the same. Keeping open communication is integral to making this work.
- To protect your relationships, create a written loan agreement that states the amount of the loan, your plan for paying it back, the risks involved, and the role that the lender will play in your business. This will help everyone keep the business relationship separate from the personal relationship.
Beyond Friends and Family
The newest trend in financing startups – especially creative or innovative businesses with popular appeal – is crowdsourcing. Crowdsourcing entails using the viral power of the internet to request funds from a large number of people who don’t know you but want to see your business succeed.
- The most important aspect of your crowdsourcing campaign is the plea. Don’t just give the bare essentials. You need to tell your business’s story – its origin, plans, and goals for success – in an interesting way that will connect with strangers and convince them to invest in you.
Small Business Loans
Loans, credit cards, and lines of credit are often sourced as a strategic means for small businesses acquire funding – in their early years, up to three-quarters of their funding comes from these sources.
- Your business may need to be up and running for several years before a bank will provide you with a business loan. Expedite this process by creating a relationship with your bank early in the process. Open a business checking account, apply for a business credit card, and apply for a DUNS number to establish a business credit history (obtaining a DUNS number is free in Australia and is respected worldwide).
- Small business loans are frequently backed by the Australian Government or by private banks; these loans vary depending on which state or territory your business is located in. Government grants are also available.
Stretching Your Budget
In addition to borrowing capital from friends, family, and banks, you can help your business get off the ground by reducing up-front costs. The less money you need to produce up-front, the more likely you’ll be able to get your business started on an even footing.
- Reconsider making large up-front purchases for business necessities like office space, furniture, and equipment. Renting or leasing these items puts less of a strain on your startup funding while still enabling you to get the items your business needs in order to run.
- You can spread out other business costs in the same way: consider cloud-based Software as a Service applications rather than traditional business software. Much like renting, SaaS spreads out the cost of your software over the course of the year, rather than purchasing it all up front.
Having enough money is integral to both starting a business and keeping it running through economic ups and downs. With various types of loans, crowdsourcing, and cost-cutting, you can help your new business become a long-term success.
Megan Webb-Morgan is a web content writer for B2B lead generation resource, ResourceNation. She writes about small business, focusing on topics such as business sales. Follow Resource Nation on Facebook and Twitter, too!