Funding Sources and Grants
Find the RIGHT kind of money
Finding the RIGHT kind of money for your company is very important. Conversely, finding the wrong kind of money can be fatal for your company. You owe it to yourself to take the time to think about and understand grants, loans, and investments, and the dynamics of getting money for your company. The following funding sources can help you start a small business.
Usually, the government does not provide grants to start or operate a for-profit business—unless the business is in a specific industry, is in a specific location, or serves a very targeted cause. In other cases, there are many organizations that receive government grants or subsidies and they, in turn, provide grants and financial assistance to new for profit companies. When they do work, they are great, since they do not accrue interest or need to be paid back. Unfortunately, the competition for this type of funding is significant; and the grants are typically limited in scope.
Venture capitalists and angel investors can be a great source of financing if your company has the right opportunity for them. Consider venture financing only if you have an innovative concept with high margins that can scale quickly. Venture capital and private equity investors are private investor firms that invest in, typically, early-stage private companies. These firms are generally populated with very smart, very sophisticated professional investors. Getting this type of funding is notoriously difficult, so proceed with caution.
After you are established and have cash flow, a bank can be a great source of capital to expand your business, but very few new companies qualify. It can lead to tremendous frustration and a giant waste of precious time. Banks are not in the risk business. Generally, a bank is more open to loaning you money only after you can show them your business is sound, will produce cash flow, AND you can show the bank several ways they would get their money back. Banks typically lend only against assets or cash flow. Unless you have a business with assets or you have substantial personal assets, you will not qualify for a commercial line of credit or bank loan. However, bank loans may be a good or very good source of funding later on, once your business has grown.