• When approaching the decision to seek more money for your company, you as the decision maker must carefully consider both the benefits and the costs of seeking outside financial help.  An up to date and carefully considered business plan is critical to help you and your potential funder evaluate if additional money is necessary and prudent.  You should review your financial records and projections and be able to document how your company’s future income stream or increased value will allow your business to compensate its financer.  If your company is a startup with no track record you’ll need to demonstrate that your idea is great, that the market is large, and that you’ve got the right team to lead the company.  Many business assistance organizations offer technical assistance with business plans and financial analysis.

There are many organizations and individuals which offer money in exchange for something from your company; your decision to borrow money should be based whether what they are offering fits your business model.  Typically funding can be divided into debt financing or equity financing.  Debt financing obligates your future income to repayment of a loan over time with interest.  Equity financing means that you will give up a portion of the ownership company and potentially some control in exchange for money (e.g.: a partner, angel investor, venture capitalist firm…).  Both sources of money have pros and cons and it will be up to you to negotiate the best deal you can in order to support your company.

A business loan is a good option for many companies.  Formal sources of loans are typically financial institutions (banks, finance companies, credit unions…) and microlenders; semiformal and informal sources include peer to peer networks, your business associates, friends and/or family.  For established companies with good financials, banks are likely to offer the best terms though their interest in you will be based on their confidence that you’ll be able to pay them back (good business plan, evidence of net profit, available collateral...)

If your applications for a bank loans aren’t accepted (don’t be put off by one rejection), you can look at microlenders or less formal programs or you can explore Small Business Administration (SBA) loan guarantees.  The SBA doesn’t make direct loans but works to encourage banks to make loans by guaranteeing that the bank will receive most of its funds even if the borrower defaults.  If your bank doesn’t suggest that an SBA loan guarantee would be appropriate, you may want to contact a bank on the SBA participating lender list. The level of paperwork varies based on the specific SBA program into which you are enrolled by your lender.  More information about the SBA’s loan programs can be found at the SBA.

• Many company owners find that they require short-term credit in order to make ends meet to address a large project, seasonal opportunity or other need.  Some sources of funding include banks (lines of credit), factoring companies and personal credit cards.  If you can get a line of credit from your bank, this is likely to be your most low cost option (interest payments on the outstanding balance).  Factoring companies will purchase your accounts receivable in exchange for a portion of the payment.  Personal credit cards, like the use of factoring, may provide short-term solutions but the cost of the use of the money is likely to be quite high.

• Under equity financing, you will not have to repay the money brought to the company by investors.  This is likely to be particularly useful if you have limited liquid resources or will need a lengthy startup period during which no profits will be available to offset debt payments.  An equity investor is also likely to be more interested in sound business ideas than a debt investor.  In addition, equity investors have a vested interest in your company’s success and can provide good advice and contacts for your business.  Investors can include partners (more or less active), angel investors, venture capitalist firms, and corporate capital to name a few.  The biggest downside of equity financing is that you may be required to surrender some control over your business. Some resources for equity financing are listed below.

The following organizations are among those which offer technical assistance with the development of a business plan and advice on the preparation of financial statements.

Service Corps of Retired Executives (SCORE) 

Small Business Development Center (SBDC)

Opportunity Fund

Pacific Community Ventures

Southeast Asian Community Center 

California Coastal Rural Development Corporation

TMC Working Solutions 

Person to Person Lending

Borrowing from Family and Friends

Keeping Family and Friends Loans Strictly Business

MoneyTree Report

National Venture Capital Association

SBA Newsroom