The phrase “million dollar idea” is a bit of a misnomer. Yes, there are some truly incredible businesses that make you slap yourself and say “Why didn’t I think of that!” But the idea was just the very start of that process. Along the way, there had to be business plans created, marketing ideas brainstormed, employees hired, advice sought, and most importantly, financing to be had.
Without some start-up funds, there’s very little (if any) businesses that can be created. But many entrepreneurs are a little more creatively minded than financially minded, so here’s a brief overview of what you need to know when considering small business financing.
You have many ways you can finance your new business. According to the statistics from the U.S. Small Business Administration (SBA), the median startup capital used by new employers is roughly $50,000. But don’t freak out if you’re not looking for that much. 20% of new employers and 39% of non-employers ended up using less than $5,000 worth of startup financing.
Further Financing Options
Figure 2 on the right shows just a few of the ways that small businesses can find financing. As you can see many people work through the large financial systems already in place, such as the 19% that acquire a business loan (many are offered by Local Banks in New Orleans). After all more than $50 million in SBA loans are provided every day to U.S. small businesses. Similarly, 7% that use Business card debt. Others simply use their personal options, either through a loan or credit card.
And don’t forget, there’s always family. 5% use a loan from the owner or family, and 13% use owner / family equity. Just make sure to repay the loan fairly if you take one, or you might find coal in your stocking next Christmas!
Other Financing Topics You Should Be Aware Of
There are a few more things you should know before you get started. Most importantly, your personal credit score. You might only think about it when you’re buying a car or considering a mortgage, but it can easily affect how different financial institutions look at you, and consider your business.
In addition, right from the beginning, keep careful track of all your money. An online banking account will help you get started, so that you don’t have to keep the shoeboxes of receipts from yesteryear. Our Entrepreneurship Endeavors series will also have numerous additional tips for you to get you through that first year of business!
Whichever strategy you go with, reading this article is just the first step of what is a (slightly lengthy) path to a financially sound and successful business.
This guest post was written by Flynn Zaiger in association with Hibernia Bank. The views expressed herein are those of the author and not necessarily those of any financial institution or bank. This article is intended to provide those reading it with information about matters of current interest. It should not be construed as legal or financial advice concerning a specific topic and should not be acted upon without contacting the appropriate professionals.