33 min

Financing Sources for Your Small Business - SB011 Small Biz 101 Podcast

Find the Right Biz for You Series (Part 10) Welcome to Episode 11 of the Small Biz 101 Podcast – The 10th and final episode of the Find the Right Biz for You Series. We’ve covered quite a bit in past series episodes: Self-assessment Generating business ideas Business styles Business cautions Research - Is your idea a viable one? What will your business idea cost? Now that you have an idea of the business costs, where will that money come from? In this episode, I cover the following sources of funding: Self Family, friends, associates Debt financing Grants Equity financing Crowdfunding Self-funding
Funding the business with the owner’s own money is the #1 source of financing for most small businesses. It’s also the one I almost always recommend for my small business clients, if they can swing it. Where might your money come from? Inventory your assets You may find you have more assets than you thought. Perhaps, an investment account that’s skyrocketed with the market the last few years. You may find assets you can sell to support starting up your business. Savings From what you currently earn Consider moonlighting for the sole purpose of saving for your new business Personal credit cards If you go this route, be sure to get the lowest credit card rate possible and NEVER be late or miss a payment, as often those rates go up with one missed/late payment. If using a currently-owned credit card, call the card company and ask to have your rate lowered. If using a new card, get one with the lowest rates. Check out these sources to find current offerings for hundreds of cards: bankrate.com, creditcards.com, www.lowcards.com Home equity loan There may be tax benefits to going this route and usually the rates are lower than from other sources. Be sure you will be able to pay it back or you could lose your home. Borrow against retirement 401(k) accounts Last choice source of self-funding. If you go this route, pay it back as quickly as possible. If you lose your job, you will be required to pay the total amount back within a very short period of time. You also will be double-taxed on the money as you pay back the loan with already-taxed money and have to pay taxes again when you withdraw the funds at retirement. Family, Friends, Associates
People who know you and your work ethic and who like your idea often may be willing to support you. Here are some guidelines to follow: Never ask someone for money who you know may already be in any kind of financial trouble. If, for some reason you can’t pay them back, you’ve not only put your financial situation at risk, but you’ve harmed someone else – someone very important to you. Keep it professional. Like with any financial transaction, keep your interactions business-like. Give the person loaning you money your complete business plan and review in detail the financial section. Keep the emotion out of the interaction and don’t use your relationship as a way of “guilt-ing” someone into supporting you. If the person you have approached declines to help you, accept their answer graciously and move on. Do not let this hurt the relationship. Be sure to put the terms of the arrangement in writing. Include how much you will be borrowing, for what purpose, and what the terms are for paying the loan back. Sometimes it makes sense for you to give your personal connection a percentage interest in your new business in exchange for their money. This may provide tax advantages for the lender and it can incentivize the person to loan you money knowing that if the company takes off, their investment will increase in value. Keep the person updated as to how things are going with the business, even if your news is not as positive as you would like. It’s always better that they know the truth. Pay on time and as you agreed upon. Stick with your end

Find the Right Biz for You Series (Part 10) Welcome to Episode 11 of the Small Biz 101 Podcast – The 10th and final episode of the Find the Right Biz for You Series. We’ve covered quite a bit in past series episodes: Self-assessment Generating business ideas Business styles Business cautions Research - Is your idea a viable one? What will your business idea cost? Now that you have an idea of the business costs, where will that money come from? In this episode, I cover the following sources of funding: Self Family, friends, associates Debt financing Grants Equity financing Crowdfunding Self-funding
Funding the business with the owner’s own money is the #1 source of financing for most small businesses. It’s also the one I almost always recommend for my small business clients, if they can swing it. Where might your money come from? Inventory your assets You may find you have more assets than you thought. Perhaps, an investment account that’s skyrocketed with the market the last few years. You may find assets you can sell to support starting up your business. Savings From what you currently earn Consider moonlighting for the sole purpose of saving for your new business Personal credit cards If you go this route, be sure to get the lowest credit card rate possible and NEVER be late or miss a payment, as often those rates go up with one missed/late payment. If using a currently-owned credit card, call the card company and ask to have your rate lowered. If using a new card, get one with the lowest rates. Check out these sources to find current offerings for hundreds of cards: bankrate.com, creditcards.com, www.lowcards.com Home equity loan There may be tax benefits to going this route and usually the rates are lower than from other sources. Be sure you will be able to pay it back or you could lose your home. Borrow against retirement 401(k) accounts Last choice source of self-funding. If you go this route, pay it back as quickly as possible. If you lose your job, you will be required to pay the total amount back within a very short period of time. You also will be double-taxed on the money as you pay back the loan with already-taxed money and have to pay taxes again when you withdraw the funds at retirement. Family, Friends, Associates
People who know you and your work ethic and who like your idea often may be willing to support you. Here are some guidelines to follow: Never ask someone for money who you know may already be in any kind of financial trouble. If, for some reason you can’t pay them back, you’ve not only put your financial situation at risk, but you’ve harmed someone else – someone very important to you. Keep it professional. Like with any financial transaction, keep your interactions business-like. Give the person loaning you money your complete business plan and review in detail the financial section. Keep the emotion out of the interaction and don’t use your relationship as a way of “guilt-ing” someone into supporting you. If the person you have approached declines to help you, accept their answer graciously and move on. Do not let this hurt the relationship. Be sure to put the terms of the arrangement in writing. Include how much you will be borrowing, for what purpose, and what the terms are for paying the loan back. Sometimes it makes sense for you to give your personal connection a percentage interest in your new business in exchange for their money. This may provide tax advantages for the lender and it can incentivize the person to loan you money knowing that if the company takes off, their investment will increase in value. Keep the person updated as to how things are going with the business, even if your news is not as positive as you would like. It’s always better that they know the truth. Pay on time and as you agreed upon. Stick with your end

33 min