Financing Options for Your Business or Startup

You have a knock-out idea and you’re ready to start a business. But how will you fund it? You have plenty of options, but you need the proper approach. Even if you’re asking your mom for help, you need to determine how much money you need and how long that amount will last. Creating a robust business plan, while not required for all financing options, is always a good exercise for testing the viability of your idea.

When you need money to launch a new business or a startup, consider these eight business financing options from your trusted lenders at Needham Bank.  

Business financing money from family & friends

Friends and family are a logical and popular financial resource for new entrepreneurs—but tread carefully. Loan repayments can be a tremendous source of stress if terms aren’t laid out clearly. If you’re thinking of going this route, read up on the Small Business Administration’s list of six tips for borrowing from friends and family. Be sure to do your homework before making a small business startup financing pitch. Document everything as you would with a more traditional investor or lender to avoid future conflict. 

Use a credit card

Credit cards are an easy way to get money fast, but they usually come with higher interest rates, and debt accumulates quickly if you don’t pay your balance in full every month. If you have the cash and are enticed by bonus rewards, credit cards can be a great way to float a larger purchase for the month.

There are risks, however. Depending on your business structure, you might be the personal guarantor on all debts, meaning if you fall behind on payments, your personal credit rating suffers. Also, if your business is incorporated, your credit card issuer can still require that main shareholders guarantee the line of credit, putting your personal credit on the line. 

Get a bank loan

If you’re interested in taking out a traditional bank loan, a comprehensive business plan is an absolute must. Bank loans can be difficult for new businesses to obtain because they usually require several years of profit-and-loss statements. For this reason, some banks may say no to a startup loan. 

Needham Bank is invested in supporting businesses of all sizes, and partners closely with business owners to deliver personalized solutions. Contact us to find out if a commercial loan from Needham Bank is the right choice for you.

Leverage a Small Business Administration (SBA) loan 

A loan backed the Small Business Administration, a division of the federal government, can be a viable alternative to a traditional bank loan. The SBA doesn’t lend directly to small business, but instead serves as the guarantor and co-signer for loans you’d get from an SBA-approved lender, such as Needham Bank. Regardless of your funding status, the SBA can serve as a great resource for education and mentoring at any stage of your business journey.

Turn to crowdfunding

Crowdfunding started as a way to raise money for nonprofits and charity projects and quickly morphed into an option for business funding, especially after federal legislation was passed to encourage alternatives to traditional funding. Crowdfunding can be effective for small, community businesses that can receive monetary support from the people they serve. 

Setting up a crowdfunding account for your business requires a strong marketing campaign, because that’s how you pitch your idea and encourage investment. Take care to read the fine print when comparing platforms since not all crowdfunding systems are created equal in terms of fees, which can differ based on your industry. 

Find an “angel investor”

Angel investors are usually affluent individuals who invest in startups in the earliest stages in exchange for an equity ownership (typically 20-25%). They are different from venture capitalists in that they provide seed funding, less than $1 million, whereas venture capitalists invest larger amounts in more established growing companies. 

To find an angel investor, search investor networks that may exist in your niche, industry or community. Angel investors are looking for strong returns on investment, so showing them how their investment can make a difference will strengthen your position. Angel Investor Network and AngelList are both good places to start.

Borrow from your 401(k)

Rollovers for Business Startups (ROBS) provide a way to bring over some money from your 401(k) for debt-free funding. Consider this option if you plan to use more than $50,000 from your account. 

Partnering with a ROBS expert is the best way to ensure you follow the rollover’s specific rules. For example, there can be fewer tax penalties if you set up your company as a C corporation and follow the requirements that your new company must sponsor a 401(k) plan. As with all tax-related matters, it’s best to consult your accountant for complete details.

Take out a microloan

Microloans, ranging from $500 to $35,000, are typically short-term loans with low-interest rates available specifically to self-employed people, new startups with low capital, and small businesses with small staffs. They can be easier to qualify for as a small business startup than a traditional bank loan and can help bridge any gaps between the money you have and the money you need. 

Next steps

The best place to start researching options is the SBA website. Resources are also available through your local Small Business Development Center, Women’s Business Center, Veteran’s Business Center and the business mentoring experts at SCORE

Feel free to stop by one of our Needham Bank branches and speak with our business loan specialists. We would be happy to answer your questions and see how we can help.