Business, Career, Life

Free Money for Small Businesses (Not really but this post will tell you what money is available)

In my previous post, “Five Quick Tips to Get Your Business Funded“, one of the points was to understand the various types of funding vehicles.  This is important as it allows you to tailor your ask to your needs. Here is a  list of types of financing that is actually available  for your business.

  • Your Money ~ Yes your money is the first step, it’s called owner’s equity.  Founders need to bring something to the party besides your idea and sparkling personality.
  • Friends and Family ~ Along with point one this makes up the FF&F type of financing (I left out the fourth F – Fools).  Friends and family are sources of early capital because they typically don’t ask for very harsh repayment terms and they are pretty lenient when it comes to due diligence.  They invest/loan more because of their relationship with you than the business. This is helpful when you don’t have much of the business built yet.
  • Grants ~ Before you get all excited I am not talking about the late night infomercial grants I’m talking about REAL grants, the kind you probably can’t get.  Free money from the government doesn’t exist!  Grants are very specific in what they can be used for, how they can be used and what kind of reporting that is required.  Grants typically go to non-profits that are filling a need in the market that is not economically feasible to be done in the private sector. That means that you can’t make any money out of working in that space.  They also go to companies doing science and research that the government wants done and the technology is not yet at a point where it can go to market.  Again, not ready to make money.
  • Investors and Private Equity ~ If you go this way you better hold on to your wallet. This is the most expensive money you can get.  It works for some businesses but not for most.  You also really need to be able to make A LOT of money on your business or you won’t be able to repay this.  When I say a lot, take whatever you think is a lot, quadruple it and you may be close.  There are all kinds of posts on this blog about private equity.  Check those out then ping me at if you have any questions.
  • Factoring ~ This is probably the second most expensive financing.  This is where you sell your accounts receivables at a discount for immediate cash.  When you get paid on the accounts receivables the payment goes straight to the Factor as repayment on the loan.  The key with this is you have to have solid invoices that you know will be paid and you really need to know when these will be paid.  Where you get in trouble is when the receivable extends past the payment date and you get interest added per day.
  • Banks ~ Not horribly expensive but a challenge to get if you are not in their sweet spot. Banks are conservative by nature.  They do not take risks and they are not investing in your company.  They make loans for “Stuff” based on “cash flow” secured by “inventory, equipment and/or real estate”.  Again, there are a lot of posts about bank financing on this blog to help bring you up to speed.
  • Small Business Administration (SBA) ~ The SBA is the smartest federal agency in Washington because they fund the SBDC program so I can have a job.  Beyond that it is important to know that the SBA is a guarantee lender not a direct lender.  You will not deal directly with the SBA but rather with your bank.  Make sure you have a bank that knows how the SBA works and your journey will be much smoother.

Now the BEST financing available to your business ~ SALES!!!  Revenue that you generate from your business is the most flexible and least expensive type of financing you can get.  You can spend it on whatever you want, there is no interest rate and you don’t have to pay it back.  This sounds like what you want.

So did I miss anything?

Michael Bowers

Michael has worked with entrepreneurs and small business owners for over 25 years. He has a diverse business skill set with experience in banking, private equity, strategic planning, digital media and marketing.

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