As a Business Consultant, one of the most common barriers to entry for entrepreneurs is the access to funding. I meet so many people with great ideas, the desire to learn more about the operations of their industry and a passion to push past any obstacles that may get in their way. However, capital is sometimes the one hurdle that can’t be surpassed.
It rarely fails during our discussions that someone will ask, “How can I get a grant to start my business?”
My answer usually takes a little wind out of their sail but I have to be honest… It is difficult, if not impossible, to get a grant for your business. The reason is pretty simple, who is going to give you money to make money. I am sure in the mind of the entrepreneur, it seems to be a logical progression of thought but from the stand point of the giver, what is in it for them?
Not for profit organizations generally receive grant funds because they are providing a resource to the community, usually at little to no cost therefore they have limited means of generating revenue. However, they are often accountable to their grant sources to prove that their organization is doing what it said it would do in order to continue receiving the funds. There is no free lunch.
So, if you are a small business seeking access to funds, what options are available for you?
- Personal savings – many small business owners are bootstrapping their business by working (full-time or part-time) and using their additional monies to start or grow their business. This may be inconvenient in the beginning and require you to grow at a slower than desired pace but your business would not have any debts which could be liberating in the long run.
- Loans from family and friends – although it may be uncomfortable to approach the subject with some family and friends, they are often a good source for assistance, especially if you have difficulty attaining traditional financing. Make sure you sign a document detailing the terms of your agreement such as how much money will be lent and the terms (interest rate, time period) of repayment. Most importantly, do your best to live up to those terms just as you would a traditional creditor. Don’t ruin a close relationship over money or think that the person doesn’t need the money.
- Microlenders – most microlenders offer loans under $25,000 and are more lenient when evaluating your credit; however they place a premium on collateral and will often allow you to leverage business and personal assets. Before leveraging your personal assets, be sure that the business is sustainable and has the potential to generate a profit. I met a couple that almost lost their house because they used it as collateral and when the business began to fail during the economic downtown, the bank was prepared to seize it unless they came up with the cash to repay the loan.
- Banks – they say that they are lending, however banks generally have very specific requirements for providing financing and it can be difficult for a small business or a start-up. If you are considering bank financing, make sure you keep very good financial records for your business and manage your personal credit wisely.
- Investors – so you think you have a great idea that an investor would be a fool not to give you a million dollars… It’s not that easy. There are lots of investors with lots of money to give but they want something in return (a percentage of your business) and they want to see tangible proof that it has the potential to make a lot of money. This includes market research, past sales and your vision for the future of your industry and where your product/service fits. Before entertaining the thought of bringing an investor into your business, ask yourself what you are willing to give up. There is no free lunch.
Do not be discouraged if you are seeking funding for your business.
Make sure you have a plan for your business – include a realistic approach based on you bootstrapping as well as a loan/investor plan that details how you spend the additional resources if they were attained. Ideally, the additional funds should show that you generate a significant amount of additional revenue making the case for funding.
Be diligent about operating your business efficiently and focus on providing a quality product/service while generating a profit. You may be small today but think about where you want to go and operate your business as if you are already there.