The 3 Don’ts of Securing a Source for Small Business Funding
There are a ton of options for small business funding for entrepreneurs. But how does one secure one and which one to go for? We got all the answers from industry experts
Growing companies face a lot of challenges when looking to secure capital. It can be that one thing that makes or breaks them. As newbies in the business world, young entrepreneurs and small business owners often get confused on what types of capital sources are available and which to pursue.
In the Cerius Business Today Podcast, we spoke to two distinguished CEOs who have decades of experience working with startups and Venture Capital (VC) funds. They gave us some great advice on what not to do when looking for capital for your business.
1. Don’t Waste Time
One of the biggest mistakes startups make is taking their time before they begin searching for capital. Like any kind of research, you need to start early so you have time to explore all the options. Even after you secure a source, it’ll take months before you get the money. So start early.
Ken Hubbard is an advisor at ACH Ventures holding investments in 60 companies, as well as sitting on the board of directors for multiple technology and consumer product companies. A lot of CEOs come to him saying they need money overnight. He tells us how they can avoid landing into that situation.
“Small businesses need to start looking for money way ahead of time,” says Ken. “They need to identify the right sources of money. Don’t waste your time. There’s so many sources of small business funding these days, online and offline. You could wipe out your executive team, wear them out just trying to find the right sources of small business funding, and so I really think it’s important to start early, constantly talking to the right groups.”
2. Don’t Make the Bank Your First Option
Banks might be the first place on the top of your mind to go to for small business funding, but Ken advises otherwise and says not to put your expectations in your traditional bank. He gives the example of a company that came to him for advice after they had gotten a loan from a bank. It took them close to 4 months to get the loan. Unfortunately, less than 3 months later that particular bank decided to cut the loan and withdraw, even though the company’s payments were on time and everything was good.
“It burned an enormous amount of clock. So a bank’s a nice partner in some cases, but you really need to understand what your alternatives are. You need to have a plan before you start, especially when you’re looking for money today in such a noisy, noisy environment” he says.
3. Don’t Just Look at One Source of Small Business Funding
VCs are the most talked about sources of small business funding, but they’re not the only ones and not necessarily the best. The right source depends on where you’re located and how big your business is. Somebody will always be willing to give you money, so choose wisely.
Kevin Gibbs, has been with four startups from angel funding to the final sale of the company and works with turnaround companies. He told us how the investment community has changed dramatically in the past few years and how the sources of small business funding are more abundant than ever.
“You’ve got hedge funds, you’ve got accelerators, you’ve got incubators, you’ve got advisors like Ken and Jeff. So don’t look at just one source of small business funding anymore, don’t just look at VCs,” he says.
The online market is huge and great for young entrepreneurs with a hip new product he says. It has easy access and a ton of options. Because of all the information, you’ll find it easier to do research on them and you can also take on help from the many advisors available online.
Kevin advises first thinking about what you think you need, and then asking around. “Don’t just go straight to a VC because VC’s have a particular view of the world,” he says. “You may need angel funding, you many need after-market funding, you may need growth funding. Some people specialize in that if you are a profitable company. If you’re looking for growth, you’re looking for a different sort of money. Though again the sources these days are numerous, look up your market, identify what you need, try to identify roughly how much you think you need, and then go after it. But don’t just look for one source these days.”