Finding the Funding
You’ve done all the pre-work on this business. This is where some Next Act and Accidental Entrepreneurs diverge. If you are a Next Act Entrepreneur who has owned a successful business, you may have a number of advantages such as ongoing revenue from the existing business, savings, connections, and access to partners and investors who bring not only funding but customers.
I try to discourage anyone from starting unless they have enough savings or other income to cover basic living expenses. Very few businesses can support you for the first six months (or longer). I learned this the hard way. When I started my own business, the only thing that saved me in those early months was turning my previous employer into my first customer.
Think of Funding as a Ladder
If you have fewer resources, start with the least risky source of money and move up only when you need to.
- Let customers fund your business. If you are starting a consulting, training, or other low-cost service business, sell something first. Do the work, get paid, and reinvest as much as you can. You may start smaller and grow more slowly than you imagined, but starting without debt is a very good place to be.
- Use savings carefully. If you need more to launch, you may have to use personal savings. Decide in advance how much you can safely invest without draining everything. Be especially careful with credit cards. A zero-interest offer can look wonderful until the promotional period ends before the business can pay it off. Plus high utilization rates and personally guaranteed debt can hurt your ability to qualify for other financing.
- Ask about a personal loan. A new business has no track record, so in some cases a personal loan may be more realistic. Talk with your bank or credit union. Be clear that the money will be used for a business and make sure the loan terms permit that use. While you’re there, ask what they would require for a future business-loan application. You may hear, ‘We don’t fund startups,’ or you may leave with a useful checklist.
- Ask friends and family, but with paperwork. If they are willing to help, put the agreement in writing including the repayment terms. I don’t care if you have been best friends since elementary school or it’s your grandmother. It’s much better to have a written agreement that you both have signed than to avoid family events until you pay them back.
- Learn how SBA-guaranteed loans work. The SBA generally does not make business loans directly. Instead, it guarantees a portion of loans made by participating lenders, which can make it easier for some startups to qualify. SBA Microloans are made through nonprofit intermediary lenders.
- Be very cautious about putting major personal assets at risk. Home-equity loans and retirement funds may be available in some circumstances, but losing your business is painful enough without also losing your home or retirement security. Get professional financial and tax advice before using either one.
A Word About Grants
If your plan depends on finding a grant to start the business, rethink the plan. Grants for ordinary startups are exceptionally rare. Federal programs generally focus on specialized areas such as research, technology, manufacturing, exporting, or specific public-policy goals. Private grants and competitions do exist, but treat them as bonuses, not as your funding strategy.
Final Thoughts
Traditional startup thinking: “How much money can I raise?”
Next Act thinking: “What’s the smallest amount I can risk to find out whether this business works?”
Later This Month
Rather than pack too much information in one newsletter, I’ll send a second one this month, in addition to the mid-month tip. We’ll look at business plans: when you need one, what it should include, how long it should be, and whether using AI is a good tool for creating it. We’ll also cover what lenders look for in deciding to fund your business.