Capital for small business is money obtained through credit that keeps a business operating from day to day. This capital can come from commercial loans, business credit cards, lines of credit, or venture capital. Other ways to obtain capital for small business including saving up one’s own money, borrowing from family or friends, finding a business partner, incorporating the business, finding a small investment company, and private investors.
Credit history is very important when trying to establish capital for small business. Many lending institutions will not finance a business without a credit score. Obtaining capital for small business means that business credit and personal credit must be kept separate. Once credit is established, the business should make sure that its payment history is reported to the Small Business Financial Exchange so that its credit rating will improve.
Before attempting to obtain capital for small business, business owners should have a well-written business plan explaining the type of business they have, how much capital is needed to operate the business, and an estimated budget showing how the capital would be used. Many new businesses fail within the first two years due to insufficient planning and underestimating the amount of capital for small business is needed to keep it going during this critical time. Researching estimated expenses of the business can help owners avoid underestimating the amount of capital they need.
The Small Business Administration offers assistance with capital for small business through a guaranteed loan program, a surety bond guarantee program and a venture capital program. The Small Business Administration does not make these programs directly available to small businesses, it helps people to obtain these types of capital for small business when going through the regular lending channels and it guarantees the lender that the money loaned to the business owner will be repaid.
Small business owners should carefully consider obtaining capital for small business through private investors or private venture capitalist companies. Sometimes these investors want to make changes to the business before they will invest their money in it. If the investors do want to make changes to the business, the owner should be sure that he or she agrees with the changes before accepting the investment.
A final way to establish capital for small business is through cash advances based on future credit card sales. This type of financing is called receivables factoring. Some of the benefits of this type of capital for small business are that many times the business gets the money they need sooner than going through a traditional lending institution, the fee for the advance is tax deductible, and it builds credit for the business. The process to pay the money back is much easier with this type of credit because the money is paid back through collecting a small percentage of each credit card sale of the business instead of through monthly payments made by the business owner.