by Marie Gibson
This is the final installment in NCET’s “How to Start a Business” series. Please join us next month as we begin the new “Starting your Nevada Business” series which covers the steps you’ll take as you move from planning your business to actually starting it.
Once you’ve created your business plan and you know who your customers are, how you will sell and deliver the item or service to them, and how you will run your company, the final step is to create a sources and uses of funds statement. The statement, along with your other financials, will help you determine if your revenues are sufficient to fund your business or if you need to find other sources of financing.
When starting a business, here’s the most important financial question: Do you have enough money yourself to cover your start-up expenses and six-months of operating costs – even if you have zero sales? You might have those funds in savings, in a property you plan to sell, or stocks, bonds and other assets that you can use to start your business. If not, you’ll need to borrow the money or find people or organizations to invest in your company.
Outside financing is generally debt or equity:
- “Debt” is borrowing money from family, friends, business partners, credit cards, home equity loans, or lenders, both large and small
- “Equity” is seeking investments from business partners, shareholders, or specialty funding for disadvantaged and culturally different businesses.
Debt / Loans
Loans to new businesses generally require collateral, personal guarantees, or both.
You can ask friends and family to loan you money; however, this source of income can come with strings attached and can make conversations at future holidays difficult. Many business owners resist mixing business and family. If you borrow from them, make sure that the money is tied to an official loan document with interest and payment terms.
Another option is to borrow money from banks – which may be difficult if you are a start-up, so try your personal bank, first. They will ask for a formal application, your start-up financial projections and how you are going to use the funds that you borrow. They will ask how much you need and for what purposes. You will want to share with them a formal list of your start-up costs and if you need any money for your operation expenses during the first year. Your start-up expenses should be itemized by your specific needs: deposits, purchase of machinery, equipment, licenses, professional, marketing fees—those monies that are necessary before you start selling. Your operations budget should highlight if you will need money until your business starts making a profit – maybe six months, a year or two.
If the banks turn you down, then ask a micro-lender, which is a lender with a micro-lending program with limits of up to $50,000. This type of lender, often community based, helps underserved, disadvantaged business owners with micro-loans, small business loans and with SBA loans. One of the criteria is usually for the applicant to be declined by a larger bank. Some local sources of micro-loans include:
- Audacity funding, https://www.audacityfundreno.com/
- Prestamos, https://www.prestamosloans.org/lending/small-business-loans/
- Rural Nevada Development Corp, http://rndcnv.org/, and
- Western Nevada Development District, https://wndd.org/.
Equity / Investors
Getting an equity investment is much different than getting a loan:
- Investors in new businesses will often ask for a considerable amount of equity in – and potentially control of – your business.
- Investors will often be very involved in your business’ strategic and tactical issues.
- Seed, angel and Venture Capital investors are primarily interested in businesses with very high growth potential rather than “lifestyle” businesses which generate more modest revenue.
One source of financing is known as seed money, where an investor offers a relatively small amount of funding in exchange for a portion of the equity. Each investor will have its own criteria for applying and you can find more details on their respective websites.
- InNEVenture Fund (UNR), https://nvric.org/inneventure-fund/
- Ozmen Ventures, http://ozmenventures.com/
- Reno Seed Fund (EDAWN), https://www.renoseedfund.com/
- Sierra Innovation Fund (Sierra Angels), http://www.sierrainnovations.net/
Angel financing and Venture Capital funding is provided through investor groups of experienced investors who may contribute considerable money for businesses they feel will make a large return for their investment. Here are some of the local angel Investment and Venture Capital groups in this area:
- Advantage Capital, https://www.advantagecap.com/
- Battle Born Ventures, https://www.battlebornventure.com/
- Sierra Angels, https://www.sierraangels.com/
- Silver State Opportunity Fund, http://nvssof.com/
You might also consider group funding sites, sponsored and requests spread through social media. Three major sites are:
Obtaining financing may seem daunting and time-consuming, but the lack of funding shouldn’t stand in the way of launching a great business idea. Give it a try and see where your financing inquiries take you!
Marie Gibson, Management Consultant, Gibson & Associates, LLC, helps business owners create, fine-tune, and actually use their accounting systems to earn profits with certainty in uncertain times! (www.marie-gibson.com)
NCET is a member-supported nonprofit organization that helps people explore business and technology. (www.NCET.org)