The American dream is to have an individual slice of the economic pie through owning your own business.  Forging your own path into financial freedom is very exciting and fulfilling.  Turning a passion or skill set into a source of income is one great end game. 

Once you have decided upon the type of business you want to own, the next step is to finance your company.  Many small businesses are financed by “friends and family”. However, remember you owe it to whoever helps you finance your dream to present an achievable plan and to then work diligently to make it a success.

The Small Business Administration (SBA) is a great resource for funding, with different options that can suit nearly every business venture.  In addition, as an added perk, many of the SBA loans offer a lower interest rate than other banks or lenders.  There are several options when it comes to available SBA loans:

The Microloan Plan - This is a new type of loan program that offers $35,000 in financing to a small business that has been recently established. These types of loans are often arranged through a nonprofit intermediary, or a community based lender.

1. GO Loan - This program provides financing to small business owners that reside in communities that were affected by Hurricane Rita and Katrina. The Small Business Administration will centralize the loan processing to lenders that are located in these specific areas.

2. A Targeted Loan - This is a type of loan program designed to meet the unique needs and requirements of a small business owner. There are different subcategories of loans included in this program.

3. Loan Guaranty - This loan program is the primary program of the Small Business Administration.  In this program, the SBA offers loans up to two million dollars.

4. A 504 Loan - This is a loan provided to small business owners with fixed interest rates for an extended period of time.  This loan is meant for the acquisition of tangible assets, such as machinery, modernization, real estate and equipment.

Securing funding through bank loans

A bank, located within your community, can sometimes help you obtain a loan for a small business venture.  In order to obtain a bank loan, you must have an excellent credit score and a large amount of collateral. Often, a second mortgage or first mortgage re-finance is the only collateral that will interest a bank, so you need the entrepreneurial spirit of “of course it will succeed” from the start.  Ideally, you should begin your funding process with the SBA, which has lower interest rates and more reasonable collateral requests, while reviewing the bank loan as a secondary option.  

Funding your business with venture capital

Venture capital (VC) funds a small percentage of the total businesses created in the United States. Venture capital can consist of small groups of local well-heeled investors to larger hedge funds which pool many investors together. Venture capital is expensive in that one typically must give up a large portion of the upside of a venture in order to satisfy the risk that the new business presents. However, the saying goes; it is better to have a small amount of something than a large amount of nothing.  In addition, venture capital comes with other strings. Often managers or management groups are assigned to your business to watch over the VC’s investment. This is not always a bad thing since typically; you can use the help in making the venture successful.

Friends and family

Probably the most prevalent source of initial business capital comes from either yourself or your network of family and friends. If you are confident in your venture and willing to risk a relationship, asking your family or friends to provide capital and partner with you is a great way to start. Who better to share the fruits of your efforts than those you love. Just be certain not to coerce monies from anyone and always thoroughly explain the risk and potential to fail to your investors.