What funding sources are available for small businesses?

Financial expert and SCORE counselor David Plucinsky shares his expertise in this first of a series of articles on how to fund your business.

“One of the most frequent questions asked of SCORE counselors concerns ways to fund a business. The topic is very broad; today’s article addresses general concepts.

Money: You want it, someone has it and you are looking, oftentimes to a stranger to part with it; invest in your idea, lend to your business or provide a grant. No one gives money away, no matter how good your idea or your current business is, unless there is “demonstrable evidence” to support funding. Funding sources want to know that they are not throwing money into a “Black Hole”. Demonstrable evidence is your high quality business plan which addresses:
---- For equity investors (e.g. Angels or venture capital firms), a return on investment
---- For debt lenders, proof there is sufficient collateral and cash flow
---- For grantors, proof the concept is viable plus documenting that a social good will occur

Where to look for funding depends on who you are. Are you an entrepreneur with a great idea? Perhaps an entrepreneur with a proven idea; you have a proto-type or beta site to back it up? You may already be in business and struggling, possibly in business and succeeding, looking to expand.

While there are no hard and fast rules as to where to source funding, certain realities do apply. Banks will not fund a start-up. Organizations like the Small Business Administration (SBA) or the NJ Economic Development Authority do not fund businesses; they provide guarantees to banks once the bank determines that the borrower is credit worthy. Banks require collateral to support the amount of money needed, be it assets in the business (heavy duty machinery, receivables from customers or property), equity in your home or other assets that can reasonably be converted to cash.

Professional investors such as venture capital firms do not fund start-up businesses. Occasionally what is known as “Angel” investors may, however recent statistics prove this to be less likely. Looking for money from those close to you and indeed, yourself, generally known as “friends and family” is your best option if you are starting a new business. Grants are available; these however generally apply to” special circumstances”, the disadvantaged, minorities and those providing a social good, such as creating new jobs. Many SCORE clients believe grant money is “easy” money, this is most certainly not the case, obtaining a grant is very hard work.

As noted at the outset, funding is a very broad topic. Future articles will look in depth at the various forms of funding.”

Richard Strug
Greater Princeton Area SCORE (Chapter 631)
Serving Mercer and Middlesex Counties