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Small business financing


Your business idea is great. You need additional funding for your existing business or cash for your start-up. Where do you go? Where do you look? Before you head down the “long and winding road,” know all of your options. You can have a well-prepared business plan with realistic forecasts and walk into a bank, but walk out empty-handed.

Without understanding a lender’s expectations, you may assume – “if I have a growing business or a ‘concept’ or ‘idea,’ I’m entitled to the financing.” That’s an unrealistic assumption. And, you know what happens when you assume. What are your options?

It’s one of the most inexpensive ways to raise capital. It’s operating or starting your business as a lean, efficient and self-sufficient machine using your money. When the time comes to seek outside money, bootstrapping does look good to lenders. Your expanding or start-up business that was generated from your money becomes more valuable to most funding sources. However, If you have a high-technology product, bootstrapping isn't always advisable. 

Friends and Family
Without a lot of hassle or legal expenses, this source of financing is typically available quickly and comes in small amounts. But be careful; preserving your relationships with friends and family are as important as your business opportunity.

Bank Loan
Realistically in this economy, bank loans are becoming increasingly harder to secure. Before they lend you any money, banks want to see your track record.  As a start-up, you can't establish a track record until you get the loan. It’s the old “which came first, the chicken or the egg?” Remember, that a bank will scrutinize your business plan from the first word to the last. They will assess your loan worthiness using the five C's of credit:
1. Character: what’s your credit history?
2. Capacity: do you have industry experience?
3. Capital: how much money will you need; how will you spend it?
4. Conditions: what are the terms of the loan without restricting cash flow?
5. Collateral: how much money will you provide?
(Be sure and check out the Small Business Administration’s (SBA) preferred lenders' list. Their limit is $35,000, but this may be all you need.)

Credit Union
Sometimes, credit unions offer better financing packages than banks. Their requirements tend to be slightly lower. They will also look at your Business Plan.

Trade Credit
You might consider using trade credit which is sometimes called “buy now, pay later” or called an “open account.”

A mircolender may be a great option for lowe- risk interest rates for your existing or start-up business. But, generally, they don’t loan more than $5,000.

Equipment Leasing
Instead of a loan, many small businesses use equipment leasing. Lease costs can be higher than loans. However, they may qualify for future depreciation deductions.

Using Credit Cards
With today’s credit card “abuse” economy, using your personal credit cards for your existing or start-up business is extremely risky and usually comes with a very high interest rate. They can also put your personal credit rating in jeopardy. Establishing a business credit card can save you money and often puts you in a better position to obtain bank financing.

Angel investors
Angel investors are high net-worth private investors who can infuse your business with cash in exchange for a percentage of ownership. Although typically an individual, the actual lending may come from a trust, business, limited liability company, investment fund, etc.

Venture Capitalist
Venture Capitalists or VCs’ invest in early-stage, high-potential growth companies. For their investment, they look for a high return on investment (ROI.) They generally invest from $500,000 to $5 million or more. However, most VCs’ rarely look at investments below $1million. A couple of them that you should recognize are Google and Twitter; they were started with VC funding.

Alternative Funding
Alternative funding isn’t a bank loan, but it can be a “bridge” to more traditional long-term financing. The range of funding can be as little as $25,000 to well over $100,000,000.  An application to money-in-hand varies from 24 hours and could take up to 14 days or longer. According to Eric Standlee, principal and vice president of American Prudential Capital, an international alternative business-2-business funding firm headquartered in Houston TX, “Even though the current US financial market is tough, there’s still money out there for start-up and expanding businesses. Our market is somewhat better protected because of Houston-based oil and gas companies.” Standlee continues, “Small business start-ups and existing businesses that want to expand must think out of the box and be creative when looking for financing. A start-up should do their homework and have potential clients already identified and lined up. Having them committed to using your service or buying your product is the ideal position to be in. For an existing business, alternative funding can provide the capital needed for operating expenses such as accounts receivables.” (Note: Standlee created InHouston, a “pay-it-forward” professional business networking group.)

When talking to potential investors’, you need to be extremely prepared. And, I don’t mean to simply hand them your business plan. By preparing, you’ll substantially increase your chance of securing funding and save yourself a lot of time. Being unprepared may result in an unpleasant experience and the results won’t be pretty. And always remember, you don’t get a second chance to make a first impression. So, make sure you . . .

• understand and articulate all aspects of your business investment opportunity
• know your market(s)
• research and target specific financing sources
• attend seminars on financing where lenders are panelists
• determine if you know someone who knows an investor
• secure a warm introduction
• practice, practice and practice your “pitch”

List of Resources
Houston Angel Network
Texas Small Business Fund (start-up capital for the disabled) (start-up capital for minorities) (start-up capital for women)
Small Business Administration - SBA (women business owners’ resources)
The National Center for Native American Enterprise Development and Native American Bank NA (Native American business financing resources)
SBA Guaranteed Loan Program
SBA Small Business Innovative Research Loan Program or SBIR (grants only available for technology businesses)
Texas Economic Development & Tourism Division
National Association of Small Business Investment Companies (VCs')
National Venture Capital Association (VC trade group)
Forbes,com (The Midas List - 2009 top 100 venture capitalists)
Houston Technology Center (non-profit organization) (entrepreneurs’ research, rate, review worldwide funding sources) (small business bank loan request template)
Bank of America (loan or line of credit calculator)
Bank (debt assets calculator)

And take a look at:
Americas Most Promising Start-ups (Source: BusinessWeek)

Venture Capital Due Diligence by Justin J. Camp
Fundamentals of Venture Capital by Joseph W. Bartlett

20 Tips for Finding Money Now 
The First Time Small Business Loan 

Quote Corner
If you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the bank's problem." J. Paul Getty

Joke Corner
One entrepreneur to another.
"Why are you so depressed?"
“My investor just turned down my proposal.”
"Don't worry," said his friend, "When they say 'no' they are just maneuvering for negotiating room."
"He didn't say 'no,' he said, "Phooey!"
© Copyright Mark W. Lund 2009

Stay tuned for these upcoming small business articles with topics ranging from blogging to hiring; from joint ventures to inventory; from purchasing to stress, from security to taxes and the list goes on.  


  • James 5 years ago

    Lea-Ann, OUTSTANDING article! Your best one yet!!
    Filled with VERY timely information, great links, books, quotes, and even a little humor to go with it!
    I will forward this to friends and make sure they subscribe!

    James: Houston's Economic Policy Examiner

  • Charles 5 years ago

    Or marry a hot, wealthy woman and keep her happy!
    I'm a concert pianist, so not really "small business", but any lady that starts an article with the Beatles lyrics is okay by me!

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