You want to open a small business. Where do you start? All the dreaming and plotting in the world isn’t worth much if you don’t have the capital to get things off the ground.
We live in a time of economic uncertainty — some project steady growth in 2020 while others predict an impending recession. No matter the market outcome, the strategies for opening a small business remain mostly resolute. Exhaustive planning, documenting, and tapping multiple sources of capital will always be your starting point.
But, if the economy does slow down, you can be sure that capital is going to be harder to find. Every would-be entrepreneur needs to know where to get the money. Sure, trends such as crowdfunding have become popular due to their ease of use, but still the most promising funding options are the ones that have been time tested. Given the shifting economic tides, finding funding in 2020 will be a unique experience. Don’t be discouraged — for the most part, the same cash avenues apply, but the steps you take need to be revised to fit the new decade.
Banks have always been the primary method of funding for small businesses, and that’s not going to change in 2020. Secure, guaranteed, and often at a low interest rate, a bank loan has long been the standard method of funding for a reason.
Loans don’t always come easily — especially these days. You are, after all, asking a bank to front you a great deal of money. For example, Small Business Administration (SBA) loans can be fairly difficult to secure in 2020. They require a lengthy application process, but they come with the added perk of a low interest rate.
No matter what loan you choose, the process requires a lot of paperwork, so keep these considerations in mind before applying for a loan in 2020:
Shoot for complete transparency, because the more information you can disclose the better your chances of being accepted for a loan. Banks might be a little skittish about serving out loans on the precipice of a possible recession, but if you have a good idea, a business plan, and a track record of success, you are in good shape to secure funding.
Grants are not really designed to stand as a primary funding option, but rather act as a sort of supplementary cash resource to help small businesses get off the ground, or to fuel growth. If you find yourself just shy of your funding goal, grants are a great way to push your equity into a manageable threshold.
Grants are also very helpful for first-time business owners — especially those who have been historically underrepresented — to get a foothold in entrepreneurship. Recently, especially in the last five years, there has been a significant uptick in small business ownership among certain groups. Women, for example, are more present in small business than ever before, and an Intuit study projects even more growth in this entrepreneurial demographic over the next decade.
“Close to 1 billion women, many of whom have either never worked or worked at a subsistence level, will be new economic contributors in the world economy,” according to the report. “Because of urban migration, increased access to education, mobile technologies, micro-credit and low market entry costs, women will create work and start businesses more readily than ever.”
There are social and private programs specially designed to promote diversity within small business. Grants from $10,000 – $500,000 are up for grabs to those who belong to an underrepresented community. Applying doesn’t usually require much more than a little paperwork, so why not give it a shot?
As the small business pool continues to crowd, and traditional methods of funding — such as bank loans — become more and more competitive, alternative funding options have to enter the conversation.
Private equity has a bad reputation. Conditioned by TV dramas and Hollywood horror stories, the general public sees private investors as cut throat or willing to undermine businesses to make a quick buck. This is not the case — in the past decade we have seen the introduction of private investors specially designed to support small businesses.
According to Entrepreneur, small business investment companies (SBIC) invest billions of dollars in small businesses each year. This private investment model has grown in parallel with the growth of small businesses, and it remains one of the most promising funding options in 2020. You can find more information about the SBIC model through the federally-run U.S. Small Business Administration website.
As always, make sure to do your own research to help guide you to the right decision. Start researching the market that interests you, keep track of online listings to find businesses for sale, and be in touch with your team of brokers and lawyers. There is no one-size-fits-all solution to funding a small business, but if you go in prepared, you will be on the right track for success.
Bruce Hakutizwi is the Director of Dynamis, Ltd., parent company of BusinessesForSale.com, a global online marketplace for buying and selling small- and medium-sized businesses. Bruce frequently writes on topics that promote entrepreneurship and small business ownership. If you are interested in learning more about the hospitality industry, visit BusinessesForSale.com for insights on how to buy, sell, or run a prosperous motel business. @BizForSaleUS
This content was originally published here.
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