From Concept to Cash: Expert Advice on Financing Your Small Business

The ICSC Small Business Center has gathered finance insights from experts it and Commerce + Communities Today have featured over the past two years, including small business owners who have faced financing challenges head on. They offer advice on how to determine your funding needs, create accurate financial forecasts and explore financing options.

Engage with Your Numbers

“The only reason you should start a business is because it will make money. If you’re trying to build something that brings more freedom for yourself and your family, you need to create a business that drives cash flow as profit drives cash flow,” said Ablaze Financial founder and fractional CFO Amy Spandau. Before you look for funding opportunities, engage deeply with the numbers. To truly understand your financial situation, create a forecasting model. “At the basic level, you need to understand where all the money is coming from and where it’s going,” Spandau said. She suggested calendaring these projections over a two-year period to pinpoint exact financial needs and potential shortfalls. “That way, you know exactly how much you need and where the deficits are,” she said.

Nail Down Your Funding Needs

Before asking for financial support or investment, be clear about what you need the funding for and what it will cost. Vincent Vicari, regional director of the New Jersey Small Business Development Center at Ramapo College, explained: “There are loans for property. There are loans for capital. There are some loans that take care of quick and easy expenses and other loans to consolidate debt.” Before you start looking for general funding, nail down what exactly you need the money for, and “general growth” doesn’t cut it, he said. When coming up with a dollar amount, Vicari advised that you have 40% cash down on whatever you’re asking to borrow. “If you want $100,000, you better have $40,000 [in cash already],” Vicari said. “Funders need to see you have skin in the game.”

MORE FROM VICARI: A Primer for Financing Your Small Business

Have a Clear and Concise Business Plan

That starts with your executive summary. “It’s the summary of your idea and how you plan to fund it,” explained Arcola Robinson, the program manager of PowerUP, the Brooklyn Public Library’s annual business plan competition. It’s also the first and sometimes only section of your plan that investors, lenders and other stakeholders read, so it’s critical to make a strong first impression. The most effective executive summary provides a clear and concise summary of your business concept, market opportunity, competitive advantage, financial projections and funding needs, Robinson said. The goal is to make your points as understandable as possible. “We often tell our participants: ‘Make sure your grandmother knows what you’re selling. If your grandmother can’t understand, then assume nobody can understand it,’” Robinson said.

MORE FROM ROBINSON: 7 Tips for Writing a Successful Business Plan

Start with Yourself

Potential investors and lenders need to “understand how your money is coming in, how it’s going out and where it’s going to,” Robinson said. Where the funding is coming from cannot be solely external. “The biggest downfall for many of [the small business owners we advise] is expecting 100% funding for their business externally,” Robinson said. “We always tell them that they have to have skin in the game. If you don’t believe in your business enough to put your money in it, why should you expect someone else to do that?

Look into SBA Loans

The U.S. Small Business Administration offers several loan programs. They “are guaranteed by the government, which means that [participating] lenders are more willing to lend to small businesses that might not qualify for traditional bank loans,” Vicari said. And often, they have lower interest rates. That’s what Kevin La — co-owner of the Jasmine Beauty School in University Square in San Diego, which focuses on affordable and quality education — found. “I went to my bank, Wells Fargo, first, and the manager that works there, who I’m close with, advised me that I should apply for loans backed by the Small Business Administration first,” he said. It was good advice. “Even though it takes longer for government loans to get approved, if you stay patient, it will be worth it,” La said. “With a start-up business, you don’t want to pick up private loans because the interest rate is higher, even though they get back to you quicker and there’s less paperwork. And with bank loans, the repayment is higher. When you are starting a business, you don’t want to just jump in right away and have this burden on you.”

Consider Investment Partners Carefully

Though it may seem easier to find an investor than to find a bank that will loan you money to get started, remember that “not all money is equal,” said Kyle Inserra, who since has joined Pivotal Growth Partners as vice president of real estate. Think about “whether they are providing value or just lending money,” he advised. And before signing anything, understand their motivations and expectations. For restaurants, he said, “some people lend you money because they want to come in for a free dinner every once in a while, and you need to decide whether or not that’s OK and what you’re looking for.” To suss out motivations, ask questions like “Why do you want to do this?” and “What are you trying to get out of this investment?” He also advised to be frank with potential investment partners about expectations. Once you agree to go forward with a partnership, get the specifics down on paper immediately, Inserra said. “Sometimes, it seems casual and they’ll say: ‘I’ll give you this money. Just pay me back when things get good.’” That’s the stuff of lawsuits later on. “You need to nail that info down on Day 1 because if you don’t, it gets real messy later on,” he said.

Research Grant Opportunities

Grants don’t require repayment, making such funding a low-risk option for securing financial support. A grant provided Nishant Jain — co-founder and CEO of Presso, which makes robotic kiosks that dry clean — the necessary time to explore and refine his business idea. “I pitched [my concept] at an event, and we got $1,000 as a grant from a fund called 1517. The [organization] supports young people who want to get their hands dirty and build something, and they’re really visionaries. They invest in you and give you $1,000 for free, no strings attached. You just go build whatever you want to build. With that time and space, Jain tested his concept. “My use case was that people in gyms have these sweaty clothes in the lockers. There must be a problem there, so I set up a booth and I would literally give away $5 to anyone who would try the prototype.”

MORE FROM JAIN: There Are Dry Cleaning Vending Machines Now

Consider Crowdfunding

Crowdfunding is an option, especially for small businesses that find it difficult to obtain traditional financing. It also can be a tool to spread awareness of your concept. Bonn Rassavong, co-founder of Doinks Burger Joint in Cleveland, and his business partner used Kickstarter. “We had to bring in a little bit more cash, and the Kickstarter, I thought, would be a very fun way to pledge money from our friends and our supporters in the neighborhood.” He said: “We set a goal and had a month to fulfill it [in order to access the donations], and we hit our goal in just one week. Beyond the monetary value of that Kickstarter, it showed me that people wanted [the restaurant] and they wanted to support it. … People shared it a lot on their Facebook or Instagram. It was marketing. It felt like a pop-up before starting a business. It was a way of seeing if people would embrace what we were doing.”

At Some Point, Take a Leap

Sometimes, it’s fear that stops you from starting. If you keep looking for new funding targets, you might never gather the courage to move forward. “We had been trying to save up money because starting your own company is kind of a big endeavor,” said Peter Flores, co-founder and co-owner of the Laced Midwest chain of sneaker resale shops. “One thing we learned, though, is that if you’re looking to save a certain amount, you’re never going to get to that amount. You’re always gonna say: ‘OK, I’m here, but maybe we really need more.”

MORE FROM FLORES: Sole Success: From Sneakerheads to Store Owners