How To Seek Additional Small Business Funding

Has your business been in operation for a while, but you’ve recently realized it could use a boost? You may benefit from seeking additional small business funding to pay for new projects, try new marketing strategies, and expand your staff. You have to spend money to make money, but how do you secure the additional finances?

There are plenty of ways to obtain extra funding for your business. Pango Financial has compiled a handy guide to give you some ideas of where to look for additional business capital.

Commercial Loans

If you do your banking with a large bank or credit union, ask about taking out a business loan with your chosen establishment. The lender will already be familiar with you and your financial habits, and can give sound advice about the type of loan that will work best for your business.

To secure a loan, you’ll want to put together a sound business plan and provide financial statements from the past couple of years. Prove to your lender that you will successfully expand your business with your loan, and show them that lending you the money will provide a good return on investment.

Commercial lenders also like to see a solid credit score on a business loan application. Good business credit will indicate to the lender that you prioritize paying your debts back on time. Many lenders will also ask for you to pledge one of your valuable assets as collateral for the loan.

Pro Tip:

If you do apply for a commercial business loan with your bank or credit union, read all the fine print before signing. Avoid being taken by surprise with hidden fees or high interest rates.

Venture Capitalists

If you prefer not to work with a traditional bank, or if you’ve applied for a small business loan and been denied, another option is to partner with a venture capital firm. Venture capitalists seek out promising businesses and provide funding to the owners in exchange for a seat on their board of trustees.

Not sure how to initiate a conversation with a venture capitalist? Attend networking meetings and conferences for small business owners like yourself. Get comfortable handing out your business card to every new person you meet. Practice a 30-second elevator pitch; condense your business’s mission into a few short sentences, as if you’re selling a revolutionary product. After all, you are doing just that—you’re selling your business’s products and services, and you know they’ll be a hit with the right help.

Prove to a potential venture capital firm that your business will net them a solid return on their investment. Venture capitalists are more willing than traditional banks to take risks on innovative businesses, but they also want a seat at the table.

If you are amenable to having other voices in the room when you make business decisions, a venture capitalist can be of great help to you. They can even be a valuable source of business advice, and point you toward projects and business ideas that will make you more money. The bottom line is more money for you means more money for them, too.

Retirement Funds

Are you planning to leave your day job in order to focus on running your small business? Have you already quit or retired? Consider using some or all of the funds from your 401(k) retirement account to inject more cash into your business.

Before you withdraw all of that money, talk to a financial advisor about your options. Many small business owners opt not to withdraw the funds, but rather to roll them over. This process is called a Rollover for Business Startups, or ROBS. Here’s how it works:

  • First, you will need to register your small business as a C corporation.
  • Next, you’ll set up a 401(k) program under your business’s name.
  • Finally, you can rollover, or transfer, the funds from your previous 401(k) to your brand-new program.

After completing these steps, your business will have a fully functional 401(k) program, which financial law dictates you must offer to your employees. In fact, offering workers the opportunity to invest in a 401(k) program will attract high-quality people who want to work for you.

With a ROBS, you avoid paying additional taxes and withdrawal penalties on your retirement savings by simply transferring your funds from one account to another. While a ROBS isn’t for everyone—you should have more than $50,000 in your account for it to be worthwhile—it can breathe new life into your business. Plus, it’s not a loan; you won’t need to worry about paying all that money back after spending years working hard to build up that retirement account.

Small Business Administration Loans

Loans secured through the SBA (Small Business Administration) are similar to commercial loans in many ways. Most SBA loans won’t be through the administration itself—they’ll be through a traditional lender like a bank or a credit union. The SBA partners with banks through a loan guarantee program and pledges to buy back a portion of your loan if you are unable to pay it off.

The main difference between an SBA loan and a traditional commercial loan is the level of risk involved. When you apply for a loan through the SBA, they’ll connect you with a lender who’s willing to provide the necessary funding. SBA loans often have longer repayment terms than commercial loans, and the interest rates tend to be much lower.

SBA loans are ideal for businesses that do not have sufficient credit to qualify for a commercial bank loan. If you haven’t been in business long enough to build a solid credit history, or if you’ve made financial blunders in the past that affected your score, consider applying for an SBA loan.

Are you seeking additional small business funding, but unsure where to look or how to ask? Find creative solutions with the above ideas. Whether you’re pitching your business to an enterprising venture capitalist or filling out a loan application at the bank, present your business as a worthy investment with promising returns.

How To Seek Additional Small Business Funding