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Financing Small Businesses: Do's and Don'ts

By Tanya Roth, Esq. | Last updated on

So, you want to know how to finance a small business?

For a small business, there are many avenues you can wander down, if you're seeking financing.

Now that we have your attention, here are 5 ways to finance your small business:

  1. SBA Loans. You can go to your local bank and ask about SBA backed loans. Different banks will have different criteria on the types of loan offered. Check out the SBA website for information and to find small business loans where you live.
  2. Family and Friends. This can be a great source of early funding without much of the formalities. But be careful-- it becomes very hard to cut family and friends out of a business.
  3. Crowdfunding websites. Several websites exist that allow donors or investors to give to a project with the click of a button. Investor or donor funds are pooled together and given to the business.
  4. Banks. Loans and lines of credit are available from banks. For a new business with no history, a bank loan would be difficult to obtain.
  5. Bootstrapping. This is just a fancy way of saying "fund it yourself." Many small business owners put their own money into the small business. This may come from savings, personal lines of credit or even home equity loans.

Places to avoid

Venture capitalists. If you're trying to get a small business off the ground, it's unlikely that you'll get your initial source of funding from a VC. Don't waste your time, especially if it's your first business. Wait until you have something good going before you approach a VC.

Angel funders. Again, you won't get your first round of funding from an angel investor if you're a first-timer running a small business. You need to have a strong business in place and some history to show before you can pique the interest of an angel funder.

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