Financing Your Small Business Endeavor

In pursuit of the lofty American Dream, more and more business men and women are leaning toward the Small Business arena of commerce. Whether it be a small shop, a franchise, an online business, or a service of some kind, small businesses can be lucrative endeavors for the money-savvy individual. Since they require less planning, capital and strategy than the inception of large corporations, small businesses offer a low-risk opportunity for aspiring entrepreneurs.

Startup Capital

Determining how much capital you will need to start your business is the first, and most crucial, step. You don’t want to find yourself in a position where you have a great idea, and no products or services to offer. How much you are willing to invest in your future and the funds available to you will probably have a large hand in determining what kind of business you would like to start – it works both ways. You can have a great idea, with not enough capital; your vision and the funds required to make it happen must intertwine somewhere between the idea and the inception.

To assist in determining what kind of capital is necessary, ask yourself the following questions:

1. Will I need to rent a storefront or office space for my business?

If you are working online or from your home, then this question is moot. However, if you plan to have customers visit your location, you will need to have a space where that is possible. Allocating the funds for rent will probably be your largest expense – as well as the electricity, water, phones, Internet access, and other bills needed to facilitate its use. Sit down with a piece of paper and figure out how many square feet you will need, what kind of amenities you will require, and the basic location you would prefer to acquire. You won’t know how much it will cost until you shop various locations, but researching the cost of property in your area will give you a rough idea.

2. Will I need to hire employees to help me run my business?

Depending on the size and scope of your idea, you may need to hire employees to assist. Customer care associates, office assistants, receptionists and data entry clerks are just a few possibilities. Most small businesses have fewer than five employees, including the owner(s), but you will have to plan for this eventuality. You must have enough capital to pay your employees until you begin to generate a profit from your business.

3. Will I need office or storefront supplies?

Whether you are operating from home or from another location, you will probably need some amount of supplies. Computers, printers, fax machines, paper, pens, shelves, desks, chairs, and a vast array of other possibilities exist. Sit down with a sheet of paper and list everything that you will need. Then, get online and start looking at prices to give you a rough estimate of what each item will cost.

4. How will I promote my business to customers?

Advertising is expensive, and depending on the type of business you are starting, you will need to somehow generate interest in your product or service. Determine your target customer, and then list places that those types of people might find your ads. Newspapers, magazines, flyers, brochures, and direct mailings are just a few ideas. And unless you are good at designing advertisements, you will also need to pay a professional to create promotional materials.

5. Will I need products manufactured?

If your idea includes a specific product that you will sell, then you need to determine how that product will be manufactured. If you plan to sell homemade ornaments, for example, you will need to buy the supplies needed to make those ornaments and the proper packaging materials for shipping.

6. What kind of ongoing supplies will I need to continually furnish my business with?

All businesses have certain items that are regularly needed. Invoices are a prime example. Small businesses provide invoices to their clients for receipt of payment, and you will need to have a constant supply in your office (home or otherwise). You will need paper, pens, file folders, clipboards, and other items as well. Plan ahead for these expenses.

When you have finished determining all of your essential costs, add them up, and you will have your starting capital. At that point, you will discover whether or not you have the essential monies to continue with your idea.


Many small business owners turn to loans in order to fund their startup ventures. Most financial institutions have loan and credit line departments with skilled personnel who can help you decide what you need. Loans and credit lines are amounts of money that gain interest over a specified time period, and must be paid back over that set amount of time. The larger the loan, the greater the interest rate, and perhaps the longer it will be until you can pay it off.

Several factors must be taken into consideration before you apply for a loan or a line of credit:

1. Credit Score and Credit History – When applying for a small business loan, the financial advisor will run a credit check to determine whether or not you will qualify. This is usually done right there at the financial institution, and he or she can tell you right away whether or not they will give you a loan. As the owner, they will check your credit history, that of any cosigner, and the history of any business endeavor you have embarked upon in the past. Before you meet with the bank, you should be aware of your credit score, and any blemishes that might hurt your chances of getting a loan. Your credit history can be obtained from any one of the three credit bureaus:

2. Ability to Pay Back – You should be cognizant of the risks of taking out a loan – especially a large one – and be prepared to make good on the loan whether or not your business succeeds. Some financial institutions will accept collateral for your loan – in other words, property or assets will be levied if you are unable to pay – and some require a cosigner or a guarantor to sign with you. Call ahead and ask what they require before scheduling a meeting.

3. Interest Rates – Interest rates vary depending on the financial institution, the size of the loan, and your credit history. Research various banks and credit unions to find out how they determine the interest rates, and be prepared for your meetings well in advance. Most interest rates are fixed and nonnegotiable, so you won’t have much leeway where these are concerned.

4. Outstanding Loans or Collections – If you have either outstanding loans or collections in your background, these must be paid off before obtaining a new loan or line of credit. You will not be approved if, upon performing a credit check, the financial institution finds that you owe money elsewhere.


You can also find information about grants at the Small Business Administration website, as well as at Grants are sums of money given to a particular individual, business, or organization that do not have to be paid back. Most grants are federally mandated, and are given based on very specific criteria.

On the Internet, you will find hundreds of sites claiming that they “guarantee a grant” if you buy their product, but do not be fooled. They say that billions of dollars in grant money are waiting to be claimed by new and growing businesses, and that all you have to do is contact these federal agencies to receive money.

This is not true!

In reality, very few grants are awarded to small businesses unless they are non-profit or not-for-profit organizations or charity organizations. Grants are given for research, community service, area beautification, education, and missionary work, but are rarely granted to money-generating small businesses.

Grants are extremely competitive, and require an experienced grant writer who can plead your case to the Powers That Be. It is usually a long, expensive process that may or may not bear fruit. If you are interested in grants, read the literature at your public library or information from the SBA on the subject before pursuing this line of garnering funds.

In a perfect world, you would have all of the capital needed to start your business, and you would have to rely on financial institutions and grant programs to get you started in the entrepreneurial world. In reality, however, prospective business owners have to work to start their companies and often borrow money in order to realize their dreams.

For further information, contact the SBA, or locate a financial advisor who can better help you with your small business endeavor

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