Having a great business idea is an amazing feat, but the data shows that businesses mostly succeed or fail based on execution. The great idea matters, but running and growing a business is the most critical part of determining future success. The key to that effort is funding and capital. In other words, money to start and run a small business.
This article will outline some of the resources and ideas that will help you to locate financial support for a small business.
Boast specializes in tax credit automation and has experts that can advise on grants and other forms of funding for small businesses, SBIR and STTR programs, and small business innovation research program eligibility.
Different types of “free money”
Small business grant programs
These are intended for small business owners trying to start a small business and—based on a company business plan—these business owners may qualify for grant funds. Grants are funding dollars that usually do not need to pay back (free money) but may have some qualifications or performance barriers included with the opportunity.
For small businesses, a grant is an excellent consideration since it may not need to be paid back, unlike a small business loan. Grants can be originated from small business development centers, local governments, the federal government, and can aid existing businesses and brand new businesses.
Grant funding programs may offer the opportunity to not pay dollars back. Any business may qualify for business grants but in particular, women-owned businesses, veteran-owned businesses, black-owned small businesses, minority-owned businesses, women entrepreneurs, and other underserved and underrepresented communities may be able to capture grant funding more easily than general private companies could.
General small business grants
For private companies and the self-employed, financial assistance and funding opportunities can be everywhere if applied for in the correct way. Grant opportunities for new business, scientific research, biomedical technology, and other eligible businesses and projects are possible through state and local governments, a national association, or small business development centers.
A non-profit organization is a company structure that the government recognizes has a different purpose than a for-profit organization. Non-profits focus on education, service, charity, and other similar activities, and thus have different tax and financing structures. Small business grant programs and technical assistance to raise money for non-profits are readily available through government agencies, your local small business development center, economic development government grants, and more.
The very first money that goes into funding a small business is called ‘seed money.’ It can be your money, funds from a friend or family member, or from small business grant programs, or other business grants or loans.
Research and development are often shortened to just R&D. New small businesses often spend money on R&D and that could help them qualify for government R&D tax credit programs (free money) that help small businesses and private businesses grow.
Capital is a business term for money. Having access to low-cost capital (loans, lines of credit, cash in the bank, small business grants) is critical. Having access to grant money, free money to start a small business, or other grant programs can feel like the grand prize to seek.
A loan is capital that must be repaid and is usually secured (or backed) by some kind of asset or collateral, such as a house, cash in the bank, or the value of other items. For a small business owner, a loan to start a small business is extremely typical. State and local governments, small business development centers, local resources, and even federal agencies can help with loans for small businesses.
Most businesses are private, meaning they are owned by a person or small group of people. Even very large businesses can be private. Any business that is traded on the public markets, where people or institutions can purchase shares of that company, is public. most small business owners don’t need to worry about going public, at least not when they are starting out.
These investors help small business owners get started by providing start-up capital in the form of investment or cash, and sometimes a secured load. In return for their money, they usually take a percentage of a business to own and require regular or semi-regular updates about how the business is doing. As a business grows, this type of investor will grow past seed-stage investing into venture investing.
Where should I look for small business start-up funds?
For your local small business grant, you should look to your local small business administration. They are created to support small businesses and provide free money to start a small business through small business grant programs.
Grants are free money to start a small business and should be a top priority for business owners. Look here for more information on small business grants in Canada, https://www.canada.ca/en/services/business/grants.html, or here for small business grants in the U.S., https://www.sba.gov/funding-programs/grants.
The application process for private companies, private corporations, or qualifying businesses to obtain a business loan can be simple, depending on the organization or federal agency you work with. Lending specialists or a freelance writer can help with more expensive application processes, but for the most part business loans are more readily obtained by going to a local bank or credit union and working with a small business loans officer who can help guide you through the process.
Special accommodation may be made for women-owned businesses and women entrepreneurs, eligible small businesses for a local business. Learn more here for the U.S., https://www.sba.gov/, and here for Canada, https://www.ic.gc.ca/eic/site/csbfp-pfpec.nsf/eng/h_la02855.html.
For small businesses that are technology-based and employ 2-10 developers or engineers may qualify for free money in the form of government tax credits. For other small businesses working on innovation, scientific research, or many other areas of development, an R&D tax credit could be a viable way to recoup up to 70 percent of investment and a free resource for completely free money.
A firm like Boast specializes in helping small businesses claim eligible U.S. R&D tax credits or Canadian SR&ED tax credits using their AI-powered technology. Use their R&D calculator or for Canada, their SR&ED calculator to see how much you qualify for, or read more about tax credits here.
An angel network is easy to find in your local area. Look for local associations in your industry and ask those leaders how you find local angel investors, or search the internet. In the U.S. look here, https://www.angelinvestmentnetwork.us/, or in Canada, look here, https://www.canadainvestmentnetwork.ca/.
What else should business owners look for?
There is no comprehensive database or national institute that lists grant opportunities, or a firm that can provide grants for economic development or economic growth to a business owner instantly.
Your pursuit will take a bit of time, but on average, more than 85 percent of businesses get funded in one of the several ways included in this article. We have reviewed opportunities for minority-owned businesses, local businesses, veteran-owned businesses, diversity small business grants to help small business owners through small business grant programs, or through loans from small business development centers.
Small business owners can seek angel or family investment first, once they have factored in and utilized their own capital. Then federal grants and business grants are the next viable option. But many business grants for local business have a stipulation to be supplied for local economic development. Therefore, the government’s focus and requirements are for eligible small businesses that engage in economic development and economic growth to receive financial assistance and financial protection as a result of their efforts.
An example of this is a restaurant revitalization fund or small business development fund from government agencies that provide grants or loans to eligible small businesses. A small business development center can help existing businesses with financial assistance through grant programs.
What should I consider while seeking small business start-up money?
Should I pay myself?
Every small business owner asks that question. The answer is ‘yes!’ You should show that you are earning some money from the business, and make it official, like a monthly or bi-weekly draw out of the company account. This helps lenders or small business grant programs see you as an important asset and that you don’t work for free.
Conversely, don’t overpay yourself either. Looking like you are taking too much money from the business can make your small business appear financially ‘top heavy’ which can limit your ability to obtain free money, grant funding, federal grants, or other small business grants or loans.
Consult with a financial professional to see how much you should be drawing from your business in its start-up phase.
How much capital should I invest and when?
Having a small business plan helps answer this question. A plan simply helps inform government agencies and other financial institutions about your strategies for growth and when capital will be needed. A small business plan can be simple.
A business plan is a document with 8-12 pages that include your mission, target audience, differentiating idea or competitive advantage, how you will attract and service customers, obstacles you will overcome, and a few basic financial projections.
Consult with another business professional or advisor for most of the plan, and your financial advisor can help with the funding projections.
Do I need access to cash upfront or money over time?
It is likely that you will need both. But upfront cash is often most critical. How much you need depends on understanding the basics outlined in your business plan. Your startup should grow in phases.
When will I need the money?
Idea creation and validation
The initial phase is idea creation and validation. This means testing your idea on a small set of initial buyers to see if they validate your idea with their money and their loyalty. They can be a rich source of feedback and data to steer you in your early stages.
Funding for this initial stage should be limited to just what is needed to bring your idea to market and then test and validate it with a small group of buyers. You’ll need enough money to pay suppliers or developers or staff, and then fulfill your orders or take care of your customers. This funding may need to last just a few months, or if your idea is more extensive, you may need up to a year of financial runway.
Scaling your business
The second stage is scaling your business. This involves a much different approach to the first phase. It involves achieving efficiencies in how you operate and go to market. Investments in marketing, sales, and operation expansion will be required. This is where eligible small businesses can obtain financial assistance.
Work with suppliers, your financial advisor, or business advisors to determine what is needed, and factor this into your business and financial planning.
Who else should I bring into the process to help me obtain free money?
The best way to think about your start-up business’s funding needs—and the people to involve—is to consider these fundamentals of your business:
- This is what intellectual property you are planning to develop or bring to market.
- Is it based on scientific research or research and development, or based on experimentation and innovation?
- Is it something entirely new, or an improvement on something that already exists?
- Is it a slightly better way to do something, or an entirely new way?
- Is it cheaper or better or faster than the competition?
- Is it a service or a product, or both (a solution)?
Answering these questions will help you know how to go to market. The answer could involve different people who could help you in your efforts for free money to start a business.
- Will you need technical assistance, a patent attorney, or a corporate or contract attorney?
- Will you need engineering help or contractor help?
Most businesses rely heavily on employees, but some do not. Technology businesses where product engagement and adoption have been highly automated don’t need many people involved to serve a large group of customers. Employees are either full-time or at an early stage, they may be part-time, contractors, or vendors.
How you categorize and work with, or hire, employees at an early stage can impact how you qualify for business loans, federal grants, business grants, and more. Work with your financial advisor to determine what employees will be needed, and when and how they should be engaged.
Every small business should seek to understand its processes for acquiring customers, including costs and timeline. In addition, your processes for product or service creation and delivery, including costs and timelines.
Understanding these can help with needed efficiency during the startup phase but also when you are ready for phase 2 of the business, scale.