3 Tips for Financing a Small Business

Being an entrepreneur is great; fearing the constant threat of debt is not. It’s fulfilling and rewarding to earn income off your unique business idea, but on the flip side, you’re solely accountable for keeping your startup afloat and whether or not you can actually take home a paycheck.

Of course, a lot more is riding on the line if you’re working on startup loans for your first business venture and are held personally accountable for repaying a loan in your name. One late payment leads to higher interest fees, unexpected business expenses blow your monthly budget, and suddenly it feels like you’re sinking in the red rather than swimming in profits.

Money is the lifeblood of your business—if you start to run out of it, your operation ceases and your debtors come knocking. With these financing tips, you can avoid becoming another failed startup and take stride in being a successful entrepreneur.

1. Start with your personal capital

There’s no exact formula to estimate how much capital is the right amount for you to personally invest in your small business; the number will depend on your financial circumstances and projected profitability.

As a general rule of thumb, you want to invest as much personal capital as possible to avoid incurring interest on loaned money. That being said, you don’t want to invest too much of your savings to the point that you’d struggle to recover financially if your business went sideways.

The key is to success is creating a well-structured and thought-out business plan that includes your: 

Estimated startup costs

    • Cost of goods for materials sold
    • One-time purchases (such as furniture, software, etc.)

Estimated working capital (how much money it takes to keep your business running)

    • Rent
    • Utilities
    • Payroll
    • Taxes
    • Overhead costs

Calculate a six-month cushion

    • Give yourself enough money to cover personal expenses until business revenue begins to speed up

Include forgotten fees

    • Accounting
    • Banking
    • Legal services
    • Closing costs

Tack on hidden business expenses

    • Insurance
    • Security features
    • Health and safety concerns

2. Find the right financing structure

After giving this careful consideration, you can take your robust, detailed business plan to a lender in order to receive financing—but note that there are many different forms of financing programs you can choose to pursue.

Choose the right structure that makes sense for your business. For example, fast-growing businesses with positive cash flow and flexible, short-term needs would be best suited for accounts receivable financing; an organization that’s been operating for over a year and requires a source of ongoing working capital, alternatively, would be better suited with a business line of credit.

Try to lend locally, if possible. You want your business investor to actually be invested in your success, not just your money. Those who are seeking self-employment financing in San Diego would be much better off receiving stated income loans in California than an online banking service.

Your broker or lender doesn’t have to be your best friend, per se, but you should feel like they’re interested in a true partnership—not just the opportunity to make a profit off you.

Pro tip: Many entrepreneurs aren’t aware of the fact that businesses have assigned credit scores; if you’re going to apply for a loan—whether it’s to purchase more stock or as a means to keep operations running—you should set aside time toward improving your credit score beforehand.

3. Apply for interest-free money

Did you know that your startup might be eligible for interest-free financing? That’s the dream for most business owners and it’s possible with grants: a form of financing that provides owners with money that does not need to be repaid and incurs no interest.

Of course, grants are highly coveted, which makes the application process rather competitive; the requirements for applying are typically pretty narrow and stringent. Improve your odds by applying for a grant specific to the work you do, state you live in, or status as a minority.


Maybe the season is slow or maybe your stock was damaged; one way or another, you’re probably going to consider the need for financing your small business. Don’t invest too much of your own capital, but don’t loan too much either. Choose a lending structure that makes sense for your operation, and takes advantage of every handout possible with free business grants. With these financing tips in mind, you’ll be back in the green in no time.