Guide to Starting and Operating a Small Business | 2018 Guide to Starting and Operating a Small Business - Page 41

8 Financing a Business There are several options available for obtaining money to start a new business or expand an existing one. All businesses must plan for money to pay start-up and/or operating expenses, including one’s own salary. Most businesses begin with the owner’s own capital or loans from friends and family. Some are successful in obtaining bank financing or using a government sponsored loan program. Grants Although there is a lot of information on the internet and other media regarding grants, grant financing is highly unlikely. As noted previously in the section “Sources of Financing/Startup Resources” on page 10, the U. S. government does have grant programs but generally speaking virtually all grant money flows to local governments, state agencies, and nonprofits that are eligible to apply for grants and do so to support regional or community programs to assist small businesses. Those programs may include some secondary grant funding. If you still want to look for grants, you can search at www.grants.gov. The following is excerpted from www.sba.gov/loans-grants/see-what-sba-offers/what-sba-doesnt-offer Many times the first to invest are those who know and trust the entrepreneur – friends, family and the entrepreneur himself/herself. “SBA does NOT provide grants for starting and expanding a business. Government grants are funded by your tax dollars and, therefore, require very stringent compliance and reporting measures to ensure the money is well spent. As you can imagine, grants are not given away indiscriminately. Some business grants are available through state and local programs, nonprofit organizations and other groups. These grants are not necessarily free money, and usually require the recipient to match funds or combine the grant with other forms of financing such as a loan.” Founders, Friends and Family Many times the first to invest are those who know and trust the entrepreneur – friends, family and the entrepreneur himself/herself. Someone that doesn’t know the entrepreneur is less likely to take risks with the company unless it has achieved extremely impressive milestones. Be aware, however, that friends and family can make the entrepreneur’s life difficult if they aren’t sophisticated in business. Any early stage friend or family investment has the potential to cause trouble when you raise angel or institutional capital, so be careful on how the deal is structured. It’s usually best to keep it simple and put it in writing. Crowd Funding Crowd funding is a relatively new form of funding for entrepreneurship in which contributions or investments are made by individuals or interested parties through a networked and publicly observable platform. While it may seem like an easy and available option, especially for startup capital, as crowd funding has grown more popular, there is growing competition for those dollars. In addition, it is important to note that crowd funding for businesses is through a “publicly observable platform” where it is required to disclose the idea for which the funding is sought, exposing the business to the risk of being copied and outpaced in development by better-financed competition. 39