Small business funding is not as difficult as some people believe.

Most everyone knows that small business funding is a hot topic these days. Despite the slow down in the economy this might be the best time to seek funding. Why? Because many small business owners make the assumption that money sources have dried up. This is simply not true. Small business funding is like any other important process.

So what does the small business owner need to do to go after the needed funding?

Here is a list of approaches with small business funding that you should consider, see which one fits your needs best:

External Sources

• Venture Capital Funding - usually this is a five stage process so you must be patient and have a well developed plan to secure this type of funding. Additionally, there are pitfalls that the entrepreneur may not like (more on this later).

• Angel Investors - this is a growing opportunity for small business owners. More and more angel investors groups are being formed every day. It is knowing how to find them that can be tricky. I'll describe the "how to find these groups" at bit later.

Loans

• Government loans - the Small Business Administration (SBA) can be very helpful in securing funding that otherwise can be very difficult to get. We will look at how this source can be a real plus for the small business owner. Despite the recent credit crunch, banks have not placed the same restrictions on small businesses funding backed by SBA backed loans. Good news for the small business owner!

• Bank Loans - as with government loans, banks will lend to small businesses provided your business is not directly related to the sub-prime mortgage mess. Interest rates will remain low for the balance of 2008 so it may be a good time to talk to your banker about borrowing. Be prepared with a solid plan for the use of the money you are asking for, all bankers want to know what you will do with the money you borrow and how you will repay the loan.

Self Funding

• Borrow from Friends and Family - both friends and family have their own reasons for wanting to see you succeed, so they are motivated to lend you money. There motivation will be greatly enhance if you show them you plans for the use of the money. In other words treat this approach the same way you would if you were to use external sources of funding.

• Use of credit cards- this can very risky but it can be used as a short-term source of funding. Keep in mind that most credit card companies have a relatively high interest rate.

• Sell assets (stocks, IRA's, bonds, etc.) that you own and loan the money to your business - document the loan to avoid tax problems and so you can re-pay your self as you business grows and produces greater profits.

• Factoring receivables - sell your receivable to factoring companies. In most cases you will get 70% to 90% of the value of the receivables depending on the age and value of the invoices (and the creditworthiness of the companies who owe you money).

• Unsecured loans/lines of credit - if your personal credit is very strong there are several banks and lending companies that will loan money on a short-term basis.

• Converting insurance policies - many life insurance companies will allow a loan against the value of existing life insurance policies, however proceed with caution when considering this option.

What are the next steps?

Planning your approach.

Now that you have learned about some of the approaches to small business funding your next step is to do the proper planning to secure the funding you need.

No matter what approach you decide to take there are a few critical steps you must include in the process. Here is an outline of the of these steps (all your plans should be a written document, normally in a presentation format):

• Describe the current situation of the business, in other words what is the current state of the business - are you growing, shrinking, entering a new market or, you need new equipment, offices, warehousing, etc. to take advantage of an opportunity. The reason to describe your current situation to answer the question of why you need funding.

• Who owns the business - are you in partnership, sole proprietor, joint venture, etc. Providing a brief biography of those involved in the business can be very useful it allows potential investors a level of confidence.

• When do you need funding? Is the need urgent or long term (answer the question why the funding is urgent or long term).

• Will you need funding more than one time? Why?

• How much money do you need short-term and long-term. Why?

• How will the business pay back the funding? You need to be very specific. No one will provide funding if you cannot answer this question.

The planning and presentation process is very simple if you follow these steps. Now, go to work and get the funding your small business needs!