Funding Your Dream: A guide to financing your business

By Robyn A. Friedman    

One of the biggest challenges for any entrepreneur is raising the necessary capital to launch—or grow—amoneybusiness. Without adequate funding, any business is doomed to fail. But startups face a particular challenge: They don’t have a track record. While that may make the process of financing a business a bit more daunting, with proper research, preparation and planning, many startups can adequately meet their needs for cash.

Alysia Gilliam learned this firsthand. Gilliam, a behavior analyst, is owner of Pediatric Behavioral Services, a startup in Jacksonville. She needed working capital to cover the rent for her facility, as well as utilities, office furniture, and other costs of opening her firm, which provides behavioral services to children diagnosed with autism or other developmental disabilities. But after attending a workshop on raising capital, she was discouraged.

“In the workshop, it was emphasized that there are not many funding opportunities for startup businesses,” Gilliam said.

But she persevered. She developed a business plan, practiced interviewing techniques and researched funding sources. Her efforts resulted in a loan from Regions Bank under the Small Business Administration’s 7(a) loan program. “Make sure you know what the bank is looking for, in terms of cash, condition of the industry, capacity to repay and credit,” said Gilliam. “And know where you stand in terms of your strengths and weaknesses.”

Bank loans are just one of the ways that entrepreneurs can finance their ventures. Here are some other common ways:

• Personal savings. According to the SBA, this is the primary source of capital for most new businesses. Some people tap bank accounts, while others max out credit cards or utilize home equity loans. You retain control of the business this way, but you put your personal wealth and security on the line.

• Friends and family. Often, friends and relatives will lend money interest-free or at low rates, a huge advantage for a startup. But you’ll have to give up a piece of the business. Another disadvantage: Friends and family are no longer friends and family if you lose their money. “You better have a lot of conviction in your business if you’re going to have your aunt invest in it,” said Jim Philip, co-founder of Harbor View Advisors in Jacksonville, an investment banking firm.

• Banks and credit unions. A common source of funding, banks and credit unions will scrutinize your business plan to ensure that you are capable of paying back the loan. The SBA offers several programs to help new businesses get loans. These include the popular 7(a) Loan Guaranty Program, the SBAExpress loan, and the 504 loan program, more commonly used by seasoned entrepreneurs.

• Angel investors and venture capital firms. Angels and venture capitalists provide funding to new businesses in exchange for equity, or a percentage of ownership in the business. Fees are usually higher than a bank would charge, and you have to give up some control over your business. But for many businesses, venture capital is a necessary step toward growth. “If you can’t get a loan from a bank, and a venture capitalist is willing to lend to you, then you may want to take a hard look at that,” said Wilfredo J. Gonzalez, district director of the SBA’s North Florida District Office.

Planning to seek financing for your new venture? Here are some tips from the experts on successfully raising capital:

• Be prepared. Put together a binder before meeting with prospective sources of financing. The binder should contain your business plan, financial statements, tax returns, marketing projections, and any other information that’s relevant. “The person will think to themselves, ‘This guy has his act together,’” said Gonzalez. “He will feel very comfortable going to the committee on your behalf.” If you don’t know how to prepare properly, the Small Business Development Center (SBDC) and SCORE can help.

• Develop a relationship with your banker. Don’t just walk into your branch and apply for a loan. You need to know who the small business specialist is in your bank—and establish rapport with him or her prior to seeking financing. “Many people will tell you that they have a bank, but not a banker,” Gonzalez said. “It’s a big difference.” Your goal: To find someone willing to go to bat for your business.

• Apply for funding before you really need it. The worst time to go to a bank to apply for a loan is when you don’t have any money. If you have monetary reserves, however, your financial situation appears a lot better to a lender.

• Don’t underestimate your financial needs. The most common mistake entrepreneurs make, according to investment banker Philip, is underestimating the amount of capital they’re going to need. “If they believe they need one million dollars, chances are they need three,” he said. “You always need more capital than you think.”

• Don’t focus on exit strategy. Yes, angel investors and venture capitalists are going to want their money back—plus a sizeable profit. But entrepreneurs should focus not on how they’re going to exit or sell their company, they should focus on building a great company. “If you build a great company that has a great product and momentum, somebody’s going to want to buy you,” Philip said.

Tyler Saldutti is one entrepreneur who is doing just that. In October 2008, he founded Jacksonville-based Prime Realty, a commercial real estate brokerage, with $75,000 from savings. He was cautious, kept operating expenses low, and focused on cash flow. Saldutti wanted to avoid outside funding, so he ran his business conservatively, refusing to take on new overhead until he had sufficient cash flow to support it.

“Self-funding is a difficult way to go, but it offers the most flexibility and control,” he said. “My advice to the startup business owner writing their business plan is to get creative with your cash flow, fight the temptation to take money early on, come up with a plan to self-fund your business if you can and take investment as a last option. Then re-evaluate at the appropriate time when you are ready to grow to another level.”

Robyn A. Friedman is a contributing editor to Jacksonville Small Business Advantage. She can be reached at or through her Web site


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