U.S. Small Business Administration (SBA) has a mandate from Congress to help small businesses with their financial needs. So if you’re a small company, the SBA may be an important source of funding. The SBA does its good deeds through several specific programs:
The 7(a) program: Providing financing for a variety of general purposes, this is the most flexible and popular loan program the government offers to small businesses. You can use the money to acquire a business, to start a business, or to meet special financing needs such as a specific contractual obligation or mandatory export financing requirements.
The CDC/504 program: Also known as the Certified Development Company, this program has been established to help finance the purchase of big-ticket asset items by small businesses, such as equipment or real estate, by using fixed interest loans in combination with additional outside financing and equity.
The MicroLoan Program: This is where you go to get very small loans, with the average running about $13,000. The SBA provides funds to an outside micro lender, who makes the actual loan to a small business.
Disaster Loan Programs: The SBA offers a number of programs to assist business firms to recover from disasters, such as floods, viral pandemics, and the like. These are usually transitory in nature and are established for a specific incident, with given time deadlines for both application and payback.
The Small Business Investment Company (SBIC): The SBIC program supports the creation of independent investment companies that provide both equity capital to invest in small businesses and long-term loan financing when required.
Finally, the agency also has a program to guarantee payment of surety bonds issued to small business firms from surety firm lenders. To find out more about any of the Small Business Administration programs, check out the agency’s website at www.sba.gov/funding-programs.
Family and friends
Hitting up the family or friends can be one way to start that many have used. One recent survey found that nearly 40 percent of small business owners turned to family for funding needs. Fred Smith, for example, the founder of the enormously successful FedEx overnight delivery service, started the firm in 1971 with the help of a whopping $4 million from his family. Obviously, however, this isn’t something that everyone can do — in a world of growing income and wealth disparity, a lot of worthy would-be-entrepreneurs are getting left out, and that’s neither fair nor good for the economy. But if you think there is some spare cash sloshing around out there in your network, give it a try. If your idea for wealth creation is as good as you believe, then why not circulate it among loved ones first? (But on the other hand, don’t forget that money obligations are something that can separate friends faster than a sneeze in a packed elevator.)
Credit cards and crowdfunding
Another tactic that some start-up founders pursue is to max out their credit cards. The co-founder of SellMax, a nationwide used-car buying service started in San Diego, California, used his business card to pay for critical media advertising as no other funds were available; this was a lifesaver, and the firm is thriving today some 25 years after launch. Additionally, the fraud protection benefit offered by many credit card suppliers gives a safeguard to business newbies who might otherwise fall prey to the many scammers out there offering (false) help. And don’t forget those points that accumulate when you use a credit card for purchases; they can be converted into payment for travel expenses such as airfare, hotel stays, and meals needed to get the business up and running when cash is short.
How you get funded today through more formal means has become interesting, to say the least. Like so many other sectors of the economy, deregulation and modern technology have transformed the banking business into a kind of Wild West with the emergence of cryptocurrencies and their disruptive variants (many originating from new venture firms that could benefit from reading this book). In the past your friendly local banker was the go-to source — and you had to go through many ritual genuflections to come away happy. But, for good or bad, not today: Available funds can be no more than a computer click away and available in a flash through a so-called “De-Fi” lender (decentralized finance). If you have even minimal assets — and sometimes even if your only advantage is that you’re breathing — there’s likely some place out there that will consider or grant funds if your idea is solid and your business plan coherent.
www.spotfund.com). Conversely, just Google “crowdsourcing” on your laptop, and you’ll instantly find numerous hits. Here are a few you might consult (chosen randomly with no endorsement implied or intended):
Traditional banks
If you do choose a traditional bank loan route (from so-called “Ce-Fi” or centralized finance firms), most of them are more than willing to lend money to local businesses, provided that they can present convincing business plans. The simplest arrangement: a standard commercial loan. In this case, the bank loans you the money, and you pay it back, usually in monthly installments and with interest. But you can find all sorts of variations on this theme, from real estate loans on commercial property to loans secured by your inventory or accounts receivable and even to your personal assets such as a home (see Chapter 11 for more info). If business assets secure the loan, you usually pay a lower interest rate.
If you don’t intend to use all the money at one time, consider applying for a commercial line of credit. A credit line allows you to draw on the funds when you happen to need the cash. Given a firm’s circumstances, banks don’t usually require collateral to secure small lines of credit. Larger lines (some banks loan up to $10 million or more) are typically secured against
