The 15 Funding Options for Small Businesses in Wilmington NC

The 15 Funding Options for Small Businesses in Wilmington NC

The 15 Funding Options for Small Businesses in Wilmington NCDo you know what funding options are available to you as small business owner in Wilmington, NC? Fortunately, North Carolina small businesses have multiple funding sources for startup, sustaining operations, and for business growth. However, getting funding remains yet one of the biggest challenges that a small business entrepreneur faces when starting a new business.

The best fundraising option(s) for your small business depends on several factors such as your business needs, industry, amount needed, timing, business health and/or personal creditworthiness. A combination of different funding sources during startup and as your small business grows, would probably be the optimum financing strategy.

What if my small business does not qualify for a traditional bank loan? Included below are several alternative financing ideas, methods, and lenders that may satisfy your funding needs.

1. Funding a Small Business with Personal Funds

Personal funding also referred to as bootstrapping is where an entrepreneur risks own money to get a small business started with nothing but personal savings. You keep complete control over the small business and have no interest payment. It is thus a typical startup funding source for small businesses.

Personal funding also referred to as bootstrapping is where an entrepreneur risks own money to get a small business started with nothing but personal savings. You keep complete control over the small business and have no interest payment. It is thus a typical startup funding source for small businesses.

The key is not to spend more than you can afford, especially when you close to retirement. Personal funding sources are:

  • Personal Credit Cards: It is also possible to temporarily use personal credit cards if you cannot secure a business credit card. However, limit personal credit card purchases since interest costs are excessive and could damage your personal credit scores.
  • Retirement Accounts: Tapping into 401k and other retirement accounts early could lead to expensive fees or penalties. Even worse, this can undermine your ability to retire comfortably and on time.
  • Business Start-Ups Compliance Project: ROBS is an arrangement in which a prospective business owner rolls over his or her existing retirement funds in a ROBS Plan tax-free to pay for new business start-up costs – read more.  Keep in mind the risk of using retirement savings to start up a new business.
  • Home Equity Lines of Credit: A home equity line of credit (HELOC) is a type of home equity loan that allows you to draw funds as you need them and pay back the money with a variable interest rate. Borrowing against your home equity is a low-cost option but perilous.

If you use self-funding then, take steps to establish business credit right away.

2. Use Friends and Family To fund a Small Business

Friends and family members have helped funding many small businesses, especially in its early stages. You can consider asking them to be the first to back your crowdfunding campaign rather than directly asking them for money.

3. Funding a Small Business using Loans and Lines of Credit from Banks and Credit Unions

Small Business Commercial Bank Loans
Commercial business loans through a bank allows you to keep complete control of your small business, but might be difficult to secure for a startup. Many established small businesses can qualify for loans from banks, given a good credit rating. To secure a loan, the bank will consider the purpose of loan, business experience, business plan, credit history, financial statements, collateral, cash flow, outstanding loans, other debts and personal information.

In North Carolina, Wells Fargo & Co. and BB&T are active in giving small business loans. North Carolina’s First Bank has a program especially for small businesses and startups – click here.

Small business Line of Credit (LOC)
A small business line of credit (LOC) is a revolving small business loan that allows access to a fixed amount of capital, which can finance short-term working capital requirements. A business line of credit provides more flexibility that a regular business loan. The small business owner can borrow up to a certain limit and pay interest only on the outstanding balance of the loan. You can repay and withdraw funds as you like, as long as you don’t exceed your line of credit (LOC). A business line of credit makes sense when a small business owner has difficulty in managing cash flow, have unpredicted expenses or buy inventory.

Credit Unions an Attractive Alternative to Banks
Small business owners are also turning to credit unions for their business financing needs. Other than banks, credit unions are not-for-profit organizations that exist to serve their members. Credit unions provide small business loans at reasonable rates.

4. U.S. Small Business Administration (SBA) Funding Services

The U.S. Small Business Administration (SBA) provides several funding services and options to small business owners:

  • U.S. Small Business Administration (SBA) Loans: Start or expand your small business with loans guaranteed by the SBA using Lender Match – click here.  Even if you do not qualify for regular bank loans, you may obtain an SBA loan from one of North Carolina’s qualified banks – see list.
  • U.S. Small Business Administration (SBA) Grants: The SBA provides limited grant funding to eligible community organizations to promote entrepreneurship and specific businesses in specific industries – click here.
  • Investment Capital: The SBA can help you find an investor for your business through a Small Business Investment Company (SBIC) that is licensed by the Small Business Administration (SBA) – click here.
  • Disaster Assistance – The SBA provides low-interest disaster loans to aid small businesses recover from declared disasters – click here.
  • Surety bonds: The SBA guarantees bid, performance, and payment surety bonds issued by certain surety companies. Surety bonds help small businesses win contracts by providing the customer with a guarantee that the work will be completed – click here.
  • U.S. Small Business Administration SBA microloans: The SBA provides funds to specifically designated intermediary lenders, which are nonprofit community-based organizations with experience in lending as well as management and technical assistance. – click here.  Microloans can be used for working capital, inventory, supplies, furniture, fixtures, machinery, and equipment.

5. Funding a Small Business using Crowdfunding

Crowdfunding is an attractive way for small business entrepreneurs to raise the seed funds to get startups off the ground. You launch an equity crowdfunding campaign to raise smaller amounts of money from multiple backers/investors. Crowdfunding is a low risk to small business owners since Crowdfunders do not get ownership in the business and do not expect a financial return on the capital raised.

The North Carolina Providing Access to Capital for Entrepreneurs and Small Business (NC PACES) Act provides crowdfunding regulations – click here.

There are several trustworthy crowdfunding platforms such as Kickstarter and Indiegogo that allow businesses to pool small investments from several investors. LocalStake NC is a North Carolina-based crowdfunding platform, allowing local businesses to raise capital from individuals within the state – click here.

6. Funding a Small Business with Small Business Grants

Grants for small businesses are essentially free seed money for starting a business or carrying out a special project. They are commonly awarded to further the specific initiatives or goals of the entity issuing the grant, being it government institutions, nonprofit organizations/charitable foundations, or private businesses. Business grants are often highly competitive and come with provisions that the small business must satisfy to be considered.

Typically, small businesses that qualify for grants are engaged in research and development, environmental conservation, social services, and childcare. There are also grant programs for women-owned and minority-owned businesses. Unlike an ordinary business loan, you do not have to pay back a small business grant. However, to make sure that goals of the grant initiative are satisfied, they have rigorous reporting conditions.

North Carolina Department of Commerce offers targeted grants and performance-based incentive programs to support small business growth – click here.  In addition, North Carolina provides financial, educational, and policy support for technology companies – click here to find out more.

7. Funding a Small Business using Community Development Financial Institutions (CDFIs)

Disadvantaged small business owners have access to thousands of nonprofit community development financial institutions (CDFIs) across the US that lend capital on reasonable terms. CDFIs are private financial institutions that provide affordable and responsible funding to support low-income and other disadvantaged people and communities. Although profitable, their goal is not maximizing profits, but they are focused on expanding economic opportunity and improving the quality-of-life in distressed communities. CDFIs includes community development banks, community development credit unions and community development loan funds.

The Community Development Financial Institutions Fund (CDFI Fund) of the United States Department of the Treasury offers tailored innovative programs that invest federal dollars alongside private sector capital to support economically disadvantaged communities that lack access to financing – click here.

8. Funding a Small Business with the help of Angel Investors

Angel investors (also known as private or seed investors) are high-net-worth individuals who provide financial backing for small business startups for ownership equity. Angel investors are experienced businesspeople with a stake in your small business. So, not only do they give funding, but they will guide you in making wise business decisions. This can save you a lot of money in the long run.

Angel investment is a good fit for innovation-focused technology companies that are positioned to grow fast. Angel investors funded large technology companies such as Facebook and Google. There are many angel investors in North Carolina are seeking to fund innovative North Carolina startups.

9 Funding a Small Business with Venture Capital (VC) and Private-Equity

Small business startups or established small businesses that require substantial funding upfront may choose to bring in an investor.

Venture Capital (VC)
Venture capital (VC) is funding given to startups or other young small- to medium-sized businesses that show potential for long-term growth. Managed venture capital funds provide the venture capital. These venture capital funds (VC funds) manage the money of investors who seek private equity stakes with a high rate of return. Most VC funds have management fees and keep a percentage of the profits for their own investors.

Venture capital firms manage the VC funds and provides venture capital for part ownership and play an active role in running the small business. The advances of working with a Venture Capitalists are not merely financial since they give clear direction for your business based on a wealth of knowledge and bring industry contacts.

Most of the venture capital comes from professionally managed venture capital firms such as Khosla Ventures, Sequoia Capital, and Accel. Venture capital firms get investment capital from pension funds, insurance companies, wealthy investors, and others.

Private equity firms are professional investors that raise a large amount of capital from numerous investors and then re-invest in several ways, pursuing the biggest potential profit. They buy an equity stake in mature private businesses (or the entire companies) that show clear growth potential in sales and profits over the next couple of years (4-7).

Private equity firms will seek to increase the value of the invested business by lending support and advice on growth, strategy, financial management, technologies, operational efficiencies and more. They will hold on to their position in your business for 4-7 years before they exit.

Some of largest and most successful private equity firms in include The Blackstone Group, The Carlyle Group, Kohlberg Kravis Roberts and TPG Capital.

10. Small Business Strategic Partner Funding

A strategic partnership (strategic alliance) is a relationship between two businesses, formalized by one or more business alignment agreements/contracts. Strategic partnerships can take on different forms including contractual cooperation, joint ventures, or cross-holdings in each other. Strategic partners can be similar businesses, suppliers, vendors, and others that benefit from alignment and with whom you share common goals and interests.

A strategic partner can fund the growth of your small business in exchange for special access to your technology, distribution rights, products, staff, etc. Strategic partner funding can also be royalty-based, where the partner gets a portion of every product sale. In addition, strategic partner funding can act like venture capital when the partner buys equity in your small business.

Irrespective of how the strategic partner funding agreement is structured, it could be a good alternative funding source. The reason is that your business partner is usually going to be a larger business and you will have access to their customer base and other valuable resources. However, strategic partnerships are difficult to set up and do not always work out.

11. Funding a Small Business with Convertible Debt

Convertible debt is another way to finance a startup or established small business, if you are comfortable with relinquishing some control of your business to an investor. With convertible debt you borrow money from an investor or group of investors, and you agree to convert the debt to equity in the future. A loan agreement specifies the repayment terms. This include the timeframe and the price per share when converted, as well as the interest rate that will be paid until conversion occurs. Convertible debt is popular with lenders since the borrower pays off them a fixed interest rate until they trigger the conversion. At that point the investor will own shares in your small business.

12. Funding a Working Capital of Small Business using Merchant Cash Advances (MCA)

A merchant cash advance (MCA) is a loan that quickly provides cash for small businesses against future sales. Thus, your small business receives a lump-sum payment from a merchant cash advance provider and then you pay it back from future sales to customers.

This type of financing is available to businesses that have a steady volume of credit card sales since the merchant cash advance provider buys the rights to a part of your credit/debit card sales.

Merchant cash advances can be extremely expensive and could have a negative impact on your cash flow. In the same way that a paycheck advance should be your last resort to cover personal expenses, merchant cash advances should be your last resort to cover business expenses.

13  Use Financing/Leasing to fund Small Business Equipment

Small Business Equipment Financing
Equipment financing refers to a loan, normally a lump sum of money, used to purchase small business-related equipment. It is necessary for small business owners to note that equipment loans can only purchase equipment. The equipment itself serves as collateral to guarantee the amount borrowed. This is beneficial to small business owners that do not have other forms of collateral. Equipment loans provide for monthly repayments that include principal and interest over a fixed term. Once the loan is paid in full, your small business owns the equipment clear of any lien.

Small Business Equipment Leasing
Equipment leasing is a type of financing in which the small business owner rents the equipment rather than making an up-front investment. Equipment leasing involves making monthly payments to the leasing company to cover the equipment usage for a specific time-period. There are three choices possible to the small business owner at the end of the lease period: Purchase the equipment outright from the lender; continue using the equipment by extending the lease terms and continue making payments; or return the leased equipment.

14 Funding small business operations with Business Credit Cards

Small business credit cards give business owners easy access to a revolving line of credit with a set credit limit to cover business expenses and withdraw cash. They can be a good funding choice to start up a small business and begin establishing business credit. Small business credit cards help small business owners to separate their business and personal expenses for bookkeeping and tax purposes.

Like consumer credit cards, small business credit cards bear an interest charge if you do not repay the outstanding balance in full each billing cycle. They also earn rewards and come with other special perks such as receiving travel and purchase protections. But, they may lack some of the consumer protections as the Credit Card Act of 2009 don’t apply to small business credit cards. Yet most small business credit card issuers extend consumer protections as a courtesy to small businesses. However, certain protection of the law may not apply in every case.

Most business cards offer quarterly and year-end summaries with the ability to download purchase histories to programs like QuickBooks and Excel.

15. Generate small business cash flow using Invoice Financing or Factoring

Invoice financing or factoring is a funding solution where a small business sells its accounts receivable (invoices) to a factoring company at a discount. The service provider fronts you the money on your outstanding accounts receivable, which you pay back once the customer pays your invoice. It is a type of debtor finance that produces cash flow while you wait for customers to settle their outstanding invoices.

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