Questions about funding a small business are often the most common questions that get asked of mentors and advisors from new entrepreneurs. And while funding is a critical component of any business venture, it is often a misunderstood facet of getting your business idea off the ground.
The vast majority of entrepreneurs fund their businesses out of their own pockets. According to a recent Kauffman Foundation study, 80% of entrepreneurs used their own money to fund their venture that they started in 2012. That’s compared with only 6% who received investor money. A bootstrap venture refers to a business started on a very small budget. Though challenging to start this way, it can often help prove your business idea before you sink money and debt into the project.
While the amount of money that venture capitalist firms and angel investors can be alluring, it’s important to realize that these types of funding sources usually come later in the business life cycle. These investors want to see a company that is already generating revenue and has a potential for high growth. This type of investment is usually in exchange for a percentage of the ownership of the company.
Small Business Administration (SBA) loans are often considered when an entrepreneur is comfortable taking on debt in lieu of the equity stake for which the above investors ask. Loans require higher credit ratings for the principal owners than even traditional loans as many business ventures fail. SBA loans require lots of paperwork and background information for all principals involved. Favor is given to those companies that have been established for three years, though it is not required for all the loan types. For more information, go to the Small Business Development Center.
So as a budding entrepreneur, what should you take away from this? Start saving and figure out the cheapest way to get your business off the ground. Not only is it the easiest way to attain funding for your business, it is also the most likely source.
And if you’re looking to rapidly grow and expand your business, it may be time to look into writing and updating your business plan to find some additional funding.
Either way, check out the Finding Funding page to investigate the different sources available in the northern Nevada area.