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How To Finance A Business Startup

Unless a potential business owner has quite a bit of business experience, and very good personal credit, he or she may find it difficult to find financing for a business startup. Many lenders consider business startups risky. This is due to the fact that many business startups fail within the first year or two - well before the startup loan would be paid off. But whatever your financial needs are, or how good or bad your credit is, you can find financing for a business startup.

There are several different options for financing a business startup. The options that you try will depend greatly on how much startup capital you need. If possible, you should use your money to finance your business startup. This could be money that you have saved over the years, money from the sale of a home, money borrowed from family or friends, or money from an inheritance. Using one of these forms of financing your startup will allow you to start your business without being in debt - except for borrowing money from family or friends. If you borrow money from personal sources, the repayment schedule is usually much easier to manage, and often on much better terms.

If your personal savings do not cover financing for your business, you will have to try external sources. Your next option should be the Small Business Administration (SBA). The SBA has different loan programs that help small businesses get started. The most common loan that the SBA guarantees is the 7(a) small business loan. Since the SBA guarantees these loans, getting the loan is usually much easier than your next options.

If you are turned down by the SBA, your next option is to try to finance your business startup through a bank, credit union, or savings and loan. You need to prepare a business plan ahead of time because if you are turned down by one of the SBA's partners, your chances of being approved by other financial institutions would be lower.

Finding financing through Angels or investors is another option. The Angel group or investors are given equity or partial ownership in the business. If you have an accountant, he/she should be able to offer you some guidance in finding financing for your business startup.

Before approaching the SBA, financial institutions, Angels or investors about financing your business startup, make sure you are well prepared with a sound business plan, financial statements and income tax records.

Click here if you are looking for commercial equipment financing or financing for commercial real estate, business purchase, franchise opportunity, or if you need a business loan for working capital.

Click here to return to our Entrepreneur Business Start Up Guide.