Put simply, business financing is the action of getting funds to launch a new business. In today’s difficult economic times more entrepreneurs are looking to venture capital firms to help finance their ventures. Venture capital firms typically provide entrepreneurs with the resources they need to launch their new businesses. However, before embarking on a venture it’s important to understand the risks that come with this type of financing. We’ll take a look at what venture capital really is, how venture capital works, and what entrepreneurs should know before applying for venture capital or a SBA loan.
Many people think of venture capital as financing a business startup from a private investor. While venture capital is certainly one way to get funding, venture capital firms do not make up the majority of those funding sources. In some cases, venture capital is provided by the government. Some other funding sources include credit cards, banks, and loans from the Small Business Administration (SBA). In general, the majority of entrepreneurs seek a loan from a SBA-insured bank, credit cards, or a credit facility which offers small business loans.
For entrepreneurs looking for business financing options available on a limited budget, there are a number of options available to them. There are a number of SBA-insured banks, credit unions, and independent financial institutions which offer SBA-insured financing for small business growth. Entrepreneurs may also be able to find commercial real estate financing through a variety of independent financing companies and entities. Whether they use traditional lenders or alternative financing sources, entrepreneurs should familiarize themselves with the various options available to them so that they can select the best source for their small business growth needs.
Another alternative for business owners who want to obtain financing for their venture are SBA loans. SBA loans are offered by a number of financial institutions including private sector lenders and credit unions. As with private sector lenders, most SBA loans are backed by federal stimulus programs and most of them carry reasonable interest rates.
Private lending institutions may not provide SBA loans. Prior to obtaining a loan from a private lender, an entrepreneur should speak to their financial advisor to learn if SBA loans are appropriate for their business’s needs. Most importantly, entrepreneurs should understand the ins and outs of the small business administration (SBA) process. This includes understanding the application process, what type of documentation they need to submit, what types of interest rates they can expect, and what specific benefits the borrower will receive. The SBA’s website provides a great deal of information in terms of getting started as an entrepreneur, business plan advice, and how to access the SBA. Additionally, the SBA’s website provides a list of finance companies that service SBA loans.
To get an understanding of the startup funding circle, it is helpful to know that it is much easier to get money for startups than it is for established businesses. Entrepreneurs typically lack resources to tap into when looking for venture capital. Also, because many small businesses rely on highly personalized customer experiences and have very high turnarounds, it is much more difficult to secure venture capital for these types of businesses than it is for established companies. However, by obtaining a loan through the SBA, startups may be able to tap into the capital financing circle much easier.