How Small Businesses Get Funding

Many people would love to start their own businesses. The obstacle most commonly reported by would-be entrepreneurs is a lack of start-up capital. Leaving aside for the moment the irony that a capitalistic nation lacks capital, how do new business owners find the funding they need to get their new businesses off the ground? One area all would-be business owners should consider is government grants for small businesses. Let's look at some of the choices.

Private Placement

This one is probably the easiest. There are some regulations that need to be followed when soliciting anyone for investment, but if the amounts are low and the number of people you plan to involve is limited, the regulatory requirements aren't all that difficult. A private offering is simply approaching individuals of your acquaintance to buy a share of your company in exchange for a capital investment.

Crowdfunding

Services like Kickstarter and Indiegogo are an excellent way for very small companies to get the funding they need to build a prototype product or start finding an audience. Most of the larger crowdfunding sites prohibit offering equity in exchange for contributions, but there are sites that will allow an entrepreneur to sell stock to contributors.

Government Grants and Loans

One of the least well known sources of funding for a small company are government grants for small businesses. Both federal and state agencies love to give money to anyone willing to build a business and potentially create jobs. It's a guaranteed winner politically and it can often be just enough capital to get a business from point A to point B. Be prepared for more paperwork than you've seen in a while, however.

Private Note

A fair number of small companies use something called convertible debt to get their company the funding it needs. The way a convertible note works is simple. Your "investor" loans you $100 for your business. Until the loan is paid, the investor has the option to forfeit the note in exchange for a certain number of shares in your company. This is a way for investors to "try before they buy" if they are on the fence about your performance or product.

Getting capital for your company can be a difficult and lengthy process, but it is by no means impossible. A good place to get ideas is from a financial advisor, as they will have both the experience and the training to know what is best for your particular situation.