Starting a Business? What You Need to Know About Financing

Traditional and Non-Traditional Options
ROSELAND– The recent economic crisis brought extremely high levels of layoffs and unemployment across the country. As the ranks of the newly unemployed swelled, so did the entrepreneurial spirit, with startups at a 15-year high.

It can be challenging to find financing for new businesses, but it’s not impossible, say small business experts at the New Jersey Society of Certified Public Accountants (NJSCPA). Knowing where to look for funding is one of the keys to launching your new business.

Government Loans
Start your financing research with the U.S. Small Business Administration’s (SBA) loan programs. The SBA does not make direct loans to small businesses, but it does set the guidelines for loans, which are then made by its partners (lenders, community development organizations and microlending institutions). The SBA guarantees that these loans will be repaid, thus eliminating some of the risk to the lending partners.

Bank Financing
Banks offer secured and unsecured loans as financing options. A secured loan will require collateral, such as bank accounts or a property. This type of loan may offer a lower interest rate. An unsecured loan will not require collateral, but you will likely have to provide more information about your business, and interest rates will be higher.

Some entrepreneurs have enough savings or have investment accounts which they can tap for start-up capital. Small business experts advise new business owners to be sure they can cover their living expenses as well if they take this route. If you are accessing a retirement account, such as a 401(k) or an Individual Retirement Account (IRA), be wary of the penalties and taxes you may incur for early withdrawal.

The federal government offers specific grants for minority-owned businesses, businesses involved in scientific research and businesses conducting charitable work. Many state and local governments also offer grants. Check with your local government entity to see if they offer any financing alternatives. Private corporations and foundations also offer grants.

Discussing your business in different professional and social situations may open financing doors. Your own friends and family may be looking for investment opportunities. Your arrangement with them may be less formal than a bank loan, but can bring about the needed financing to get your new business off the ground. Remember, however, you’re going into a business and that requires clear understandings about interest rates, repayment terms and other details. Even when friends or family are involved, it’s a good idea to have your CPA or an attorney review your arrangements to help you avoid pitfalls.

Angel Investors
Angel investors are private investors who contribute money to a business in exchange for an ownership interest. While utilizing angel investors means you don’t have to repay a loan, you may have to give up a significant amount of equity and/or control, depending on the agreement, to the angel investors. Venture capitals groups are another good potential source of capital as well. Both angels and venture capitalists have professional groups which are excellent resources for networking with potential investors.

Prepping for Success
Having good credit is the best first step in finding funding. Lenders will also want to see:

  • How your business will operate and your projections for making money
  • How the money will be used
  • How and when you plan to repay the loan
  • That you are taking significant financial risk in the business
  • That you are responsible and can manage this business
  • Who else is involved in the business

A CPA Can Help
Small business is the backbone of our country’s economy. The last few years have been challenging for the small business sector, but there are still many different ways to get your ideas financed and make your small business dreams a reality.

If you have questions about planning financing alternatives for your small business, contact your CPA. If you don’t have a CPA, you can easily locate one online using the NJSCPA’s free, online Find-A-CPA service. Just go to, and in a few clicks you can locate a highly qualified professional who can assist you.

For more information on various personal financial matters, visit the NJSCPA’s public service website at While visiting, you can subscribe to Your Money Matters, the NJSCPA’s free, monthly email newsletter to receive valuable personal financial planning advice throughout the year.

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