How to Finance a Small Business | Small Business Loans

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BUSINESS FUNDING: HOW TO GET STARTUP MONEY

Finding ways to fund your new business is already daunting, but having to build your financial models and recording methods from scratch can make the task seem almost impossible. Don’t worry, we’ll help you get started. We’ll cover start up costs, and how to start your business’s financials off. We’ll cover some of the common overhead and recurring expenses you should expect, funding options like grants and loans. Lastly, we’ll look at tax credits and setting up a business bank account and credit card.

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FUNDING YOUR BUSINESS

Funding a small business can be difficult. Thankfully, there are funding options available at the state, federal, local, and private levels. This could come in the form of loans, grants, or investments. Some funds flow through state and local governments or agencies, not always through the federal government at the end of the day. Below, you’ll find an extensive list of what funding options are available, and you can use our business expense template to track your funding sources and how much you’ve spent.

BUSINESS EXPENSE/BUDGET TEMPLATE

SMALL BUSINESS GRANTS

A grant can be best described as funding that businesses don’t have to pay back. There are many city, county, and state government websites like the Department of Commerce for grants – but often you’ll find that the best options are local. See if you qualify for any small business certifications, such as minority-owned, disadvantaged, women-owned or veteran-owned businesses because federal and state governments will often give priority to these businesses. There are also grants for hiring veterans, felons, and other often disadvantaged populations.

Even if you don’t qualify for a grant, they’re great ways to get business. You can ask to be a subcontractor on the project or write the contracting officer to talk about how your business can provide a service in hopes that they’ll recommend you for the job. Plus, it will keep you top of mind in the contracting officer’s mind should a grant more in line with your work become available or similar need rises.

Here are a few options to get you started searching for grants:

You may also qualify for a grant if your business has been impacted by COVID-19.

TAX CREDITS

In addition to grants, you can also apply for tax credits. For example, there are tax credits available if you choose to hire veterans or ex-felons. If you use part of your home as an office, it can be deducted as part of your mortgage, property taxes, insurance, utilities, internet, phone line, supplies, and even home repairs to that area.

For more information, here’s a great blog we’ve written on deductibles!.

BUSINESS LOANS

Now that we’ve explored different tax credit and grant options that you may qualify for, let’s take a look at loan options. You can apply for a traditional bank loan with the bank of your choice if you have a good credit score, or you can pursue a credit union loan if you have poor credit. There are also business lines of credit that offer more flexibility to businesses, and unsecured working capital loans that don’t require business owners to provide collateral. Additionally, you can apply for an SBA loan on their website.

SBA LOANS

SBA (small business association) loans can be used for funding working capital, refinancing business debt, buying equipment, expanding your business, and even for buying out a partner. SBA loans come in three forms:

7(a)

7(a) loans are the most popular options. These loans provide a minimum of $125,000 to as much as $5 million for working capital and let you buy a business, refinance business debt, and purchase furniture, fixtures, and supplies. You can use this calculator to determine your monthly payment amount.

504

504 loans provide a minimum of $125,000 to $5 million for commercial real estate financing for owner-occupied properties. You can use this calculator to determine your monthly and annual payments.

Microloans

Microloans provide $1,000 to $50,000 to help small businesses. These loans’ goal is to help lower-income communities and businesses that may not qualify for standard small business loans.

You can learn more about each of these loans and apply on the SBA’s website. If your business was negatively impacted by COVID-19, you may also be eligible for these relief options.

Traditional Business Loans

With traditional bank loans, you can either get a personal loan or small business loan from a bank. These can range anywhere from equipment loans to commercial reestate and secured business lines of credit. This option typically offers more flexibility than traditional loans. You can find a list of loans with their estimated APR, loan amount, and the minimum credit score required here.

Credit Union Loans

If you have poor credit, credit unions may also be an option. These members-only organizations take a look at your full financial picture and are more likely to approve borrowers with credit scores ranging from 630-689 and rates are capped at 18%. You can find a list of options here.

Business Lines of Credit

These loans provide funds from $1,000 to $250,000 and offer more flexibility than regular business loans. Unlike loans, business lines of credit work similarly to a credit card, allowing you to withdraw funds as needed and pay them back over time. However, these requirements can often be stricter and often require business owners to have at least six months in business and $25,000 in annual revenue to qualify. For more information, you can check this list.

Merchant Cash Advances

Merchant Cash Advances buy a percentage of future revenue. This is ideal for companies with slow seasons. Instead of paying a fixed payment over a finite span of time, the cash advance company will take a small percentage of gross sales daily until the advance is repaid. So, when business picks back up, the company can quickly pay off their debt while not being strapped for cash during the slow season. This is also one of the easiest options, only requiring a few months of bank statements, lease, and to speak with a few of your vendors. If you use Square, you can even use their built-in financing or one of these other options.

Business Credit Cards

You should strongly consider applying for a credit card from your business. Not only will this make it easier for you to keep track of your business’s expenditures, it can also give you opportunities to earn cash back and other rewards. Some cards will even offer you a free year-long amazon prime subscription! Whether you’re looking for the best credit card rewards, sign-up bonuses, or you simply want to see what you qualify for, Doctor of Credit has detailed, up to date information that will help you make your decision.

If you’ve taken the time to read this full article, we hope that you feel a little more confident in tackling setting up your business’s finances. Whether you choose to start your business from scratch, buy a franchise, or acquire an existing business, the information we’ve covered will help you to make informed financial decisions, and hopefully keep your business going strong in its first year.

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