New to the world of Small Business Funding? Have you heard about a few ways to fund a business but want to explore all your options? The complete guide attempts to cover all the major funding options and a few obscure ones too; like rollover for business start-ups and direct public offerings. This guide will get you on the road to finding the right funding option for your business.

Challenges in obtaining small business funding

Small business and franchise owners often face the unknown, but it is the entrepreneurial spirit the helps these individuals overcome each challenge as it arises. Writing a business plan, hiring employees, handling taxes, licenses and accounting… each of these are elements that a small business owner will encounter.

But perhaps the most intimidating challenge comes before any of these: find the right financing method. Financing can seem like a mountain of “what ifs” bent on keeping you from realizing your dream of business ownership. But here at Guidant, it is our vision to increase the number of people who succeed in small business. And it’s our job to help people find the financing option that will make their dreams a reality.

We’re here to help you make an informed decision between investors, friends and family, bank loans, retirement rollovers and more – all by breaking down the fundamentals of each funding option, when it makes sense to use each one and how to get started.

And remember, if you want to talk through these options with somebody on the phone, we’re just a call away! Until then, let’s dive into this complete guide to your small business funding options.

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The common linear thought path

Often an individual’s first thought is “do I have enough money saved to fund my business?” A survey of small business owners across the country showed that over fifty percent used personal checking and savings accounts to fund their business. Is that not an option for you? Then you’re in the same boat as most of the rest of us.

The next common thought is to get a loan from a bank. Should be easy, right? Unfortunately, no: SBA loans are a great funding option, but 70 – 80 percent of applications are denied.

At this point, an entrepreneur might turn to a partner or investor who has the required cash. Again, this can be a solid option. And, again, success here is more frequently the exception, not the norm. When met with failure at finding an investor, most entrepreneurs give up their dream of business ownership. They’ve run out of all the funding options they know about, and so return to the same life they attempted to leave behind in the first place.

Thankfully for you, and for entrepreneurs across America, there are a multitude of financing options available – and we’re going to spell them out for you.

Two Common Small Business Funding Misconceptions

Entrepreneurs who are new to the business financing process typically come in with two preconceived notions – both of which are wrong. Let’s clear these up before diving into the different funding options.

Funding is all about the business:

Many entrepreneurs think they don’t need to consider financing until they find their business. In reality, many funding methods take into account the entrepreneur’s credit and business history, and the methods without those elements often require a certain level of cash to qualify. In the end, picking the “right” business doesn’t guarantee financing, which is why it’s important to start researching funding options early in the process.

Independent Business and a Franchise are viewed differently:

Many entrepreneurs also believe that there is a major difference between startups and franchises when it comes to financing—and in some cases this is true. But with most debt-financing options, startups and franchise locations are considered one and the same. On the other hand, some options do draw a distinction between startups and existing business. This is all based on likelihood of success—an existing business has already proven it can be profitable, which can make a difference with debt-based financing options.

Dos and Don’ts while searching for funding

  DON’T give upWildly successful Harry Potter author J.K. Rowling was rejected by over a dozen publishers before finding the right fit. Look where she is now—living her dream. Do not let the possible rejection during your financing search stop you from achieving your dream. There are multiple financing options available for entrepreneurs – we’ll find one for you, too.

  DO actively manage your credit
Most funding options take your credit score and history into consideration. Take the time to pay down your cards and build up your scores. Remember, your credit score tells lenders how risky or safe it is to lend you money.

  DO organize your financesPart of understanding what you are qualified for and which options are available to you is having a solid knowledge of the equity in your home, the value of your 401(k) and stock portfolio, annual income, etc. Having this information on-hand will help you determine which funding options are available to you.

  DO build a business plan and pitch deckNot all funding options require a business plan, but if you are serious about starting or buying a business, take the time to create one. This will save you time down the line when discussing the funding options that do require one, and give you a solid working knowledge of your plans for those that don’t. Not sure where to start? Check out this eBook, How to Build a Winning Business Plan.

  DON’T take the easy route just because it’s easyWhile it can be tempting to take the path of least resistance, don’t take the easy money without first determining if it is the best options for you. Some easy options come with high interest rates that can destroy your cashflow. Why choose that when there are other, better options a few steps down the road?

  DON’T take on more debt Whatever you do, do not make any major purchases (i.e. a new car, house or boat) or obtain more credit cards until you have decided on how you plan to fund your business. If your only option for funding is one that requires healthy credit, you don’t want to have several recent credit inquiries on your record from buying a new car.

  DON’T accept financing before talking to a business attorney & CPAThe type of funding you take can impact the type of entity you’ll operate under. There will also be tax implications, so always check in with your trusted team of professionals to ensure you’re set up for success when you begin operating your business. It’s always best to avoid any legal or tax surprises – which is exactly what your business attorney and CPA are hired to help you do.

  DO understand what you are qualified forSome funding options rely on credit, others on savings. Step one is knowing what you can support with your personal resources and ratings.

Defining Categories

Okay, we’re nearly ready to dive in. Below is a quick overview of the four categories of financing options. Feel free to skip around if you see something that catches your eye!

Self-Funding:

These funding options allow you to start your business debt-free — and not necessarily with your own cash. Self-funding simply refers to financing options that don’t require you to give away equity or take on debt. Skip to Chapter 1: Self-Funding

Equity Financing:

These funding options all involve trading a piece of ownership for the money needed to launch or buy the business. While you are giving away equity, these options also allow you to begin the business ownership journey without debt. Skip to Chapter 2: Equity Financing.

Secured Business Loan and Collateral-Based Options:

These are considered debt-financing and require some sort of collateral to secure a loan. The collateral can include your house, business or stock portfolio, and is used to lessen the risk of the lending enterprise. Skip to Chapter 3: Secured Business Loan and Collateral-Based Options.

Unsecured and Collateral-Free Loans:

These funding options involve taking on debt to finance your business, but without securing that debt with collateral. This puts less risk on you but because they aren’t secured by collateral they typically come with a higher price tag. Skip to Chapter 4: Unsecured and Collateral-Free Loans.

What we will cover for each funding option.

As we explore the different funding options our goal is to give you a basic understanding of each so you can easily choose which ones to explore. For each funding method we will answer:

What it is: The goal of this section is to give you a high-level understanding of how that funding option works.

When it makes sense to use: We’ll walk through option’s requirements and when it makes sense to use.

How to get started: If this option sounds like it works for you, we’ll take a look at first steps and resources to help you get started.

And now it’s time to dive in! Keep reading to discover your small business funding options, including friends and family, angel investors, crowd funding, SBA loans, Rollovers for Business Start-ups and more.