The Truth About Small Business Loans And Grants
Small business loans and grants are often not clearly understood due to mis-information and advertising for free government money by TV and internet promoters. Unfortunately what seems to be too good to be true usually is. This case is no different.
The truth is that there are millions of government dollars available in loans and grants. However the federal government does not provide grants to start or expand a business. They also do not lend money that is unsecured. That means you will need good credit and have to guarantee any loan.
That does not mean you should get discouraged. Let's take each case individually. But before we do you can also check out:
"A federal grant is an award of financial assistance from a federal agency to a recipient to carry out a public purpose of support or stimulation authorized by a law of the United States. Federal grants are not federal assistance or loans to individuals."..www.grants.gov
In general, grants are only available to non-profits and educational institutions. They are not typically the place to look for small business funding.
Small Business Loans
There are hundreds of loans available for small businesses. The key to note however is that the Small Business Association, i.e. SBA, does not loan money directly. The SBA provides a guarantee of loan repayment to banks. This allows banks to make loans to business owners that may not qualify for traditional loans.
A few important considerations include:
- All loans still need to be personally guaranteed...sorry there is no free lunch.
- Most loans go through banks but loans can also be made through state and local government.
- Generally good credit and relevant experience are helpful.
- You will need a business plan with financial projections showing you can pay back the loan.
- There are many different types of loans to consider. Ask your bank for help.
Small business loans and grants can be helpful in some situations but what if you don't qualify for any of the programs? What other options do you have?
The most common form of business start up capital comes from the business owners personal savings and credit cards. This is the typical bootstrapped company and in most cases it is chronically under financed. If you are in this mode you must watch your cash flow like a hawk, put off non essential expenses and start selling something immediately.
Another common option is to borrow money from friends and family. This is an option you want to consider carefully, especially the downside of a bad outcome. If you lose the money from friends and family it can be more than just awkward. One small piece of advise: always communicate as much as possible when things are going poorly as well as when things are going well.
The final option to consider is an angel investor. Typically angel investors will invest from $25k up to $1 million for a share of the companies equity. If you choose your angel carefully, often times they can offer more than money.
This can include connections and introductions as well as business experience that you need as you grow. Angels are getting more savvy these days and will often want to structure deals where you will need to give up a large chunk of the equity in the business.
You can learn more about these options at Funding Invention
When it comes to small business financing, if you have the will there is a way to get it. Sometimes you will need to get creative to find it and many times there is sacrifice involved but it is usually worth it.