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A Primer for Financing Your Small Business

April 3, 2023

As they say: “It takes money to make money.” Whether you’re just starting your business or looking to expand, a cash injection can help you secure a lease, hire staff, purchase equipment promote your brand and more. But the way you choose to access funding is just as important as the funding itself. The decision of whether to take out a loan, raise funds through crowdsourcing or partner with private investors, for instance, can affect the success of your business. “If you make a bad money decision, you’ll end up working to survive, not to be happy,” explained Vincent Vicari, regional director of the New Jersey Small Business Development Center at Ramapo College. The goal with securing funding, he added, is to avoid headaches, not create more of them.

Vicari offered his top tips for small business owners to consider when they start looking into financing.

1. Determine Your Funding Needs

Before you start searching for financing opportunities, determine how much money you’re looking for. Be clear about what you need the funding for and what it will cost. As Vicari 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. When coming up with a dollar amount, he 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.”

2. Get Your Paperwork Together

When applying for financing, lenders are going to want to see that you have a solid financial track record and that your books are in order. Before approaching any funding sources, make sure you have your balance statement, income statements and cash flow statements, as well as personal and business tax returns for the past two to three years, Vicari explained. You also want to make sure you have copies of any business licenses or permits needed to operate your business.
“If you try to access these things AFTER you go to a funder, it will slow down the application process and you will end up paying more money in the long run,” he said. For instance, in New Jersey, if you want to buy a business like a dry cleaner or a gas station, you need to have an environmental impact statement, environmental reports and surveys and a map of the site completed first. “If the entrepreneur doesn’t know that and they then need to make a deadline [with the bank], they’re going to be incentivized to use the resources of the financial institution, which may or may not mark up those services,” Vicari said.

Similarly, if you wait until after approval to get things like health inspections or business certificates, you’re “going to have delays after you sign a financial obligation,” he added. Ultimately, Vicari reminded entrepreneurs, it’s your responsibility to pay back any loans you take out. “When you plan more, your risk is less,” he advised.

3. Prepare a Solid Business Plan

Before applying for financing, make sure you have a solid business plan that includes information about your company, your financing needs and your ability to repay the loan. Among other things investors are going to want to know, according to Vicari: “What is your business? Is there a market for it? And most importantly, can you make money at it? Are you the one with the experience, passion, drive and resources to execute that business?” It’s helpful to have other experienced, reputable professionals look over your plan before submitting it. Small Business Development Centers are a good place to go for resources and advice, he said. 

4. Research Different Financing Options

There are many lenders and financing options available for small businesses, but they’re not all equal. “Only borrow what you can pay back,” Vicari said.


This money, borrowed from a lender with the agreement to repay it over time with interest, is among the most common funding for small businesses. “But loans are all different,” Vicari said. “They have different payback terms, different collaterals, different fees.”
If you’re looking to see which institutions offer the most favorable terms for small businesses, Vicari suggested starting at the Small Business Administration website, which offers a wealth of information on loans for small businesses. Among other things, The SBA website provides information on how to apply for loans, including eligibility requirements and necessary documentation. “The great thing about the SBA as a resource is there’s no other agenda other than explaining what are the different types of loans you can get,” he said.
The SBA itself also offers several loan programs, including the 7(a) loan program, the microloan program and the CSC/504 loan program. What’s valuable about those specific loans, Vicari explained, is that 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.”

Other places to look for loans as a small business include:

  • Certified Development Companies. CDCs are nonprofits focused on improving the economic and social well-being of specific communities. CDCs, Vicari explained, often focus on supporting small businesses in their communities and may offer loans to small businesses that might not be able to get financing through traditional lenders. “I tell entrepreneurs to go to a CDC because they are charged with lending buckets of money,” Vicari said. Additionally, “the period to write the loan is not fixed. They can write a loan based on character or the type of business you do.”
  • Commercial banks. Generally, commercial banks have the resources to provide large amounts of funding, which can help small businesses looking to grow and expand. Some regional commercial banks even advertise lending opportunities for small businesses. Be aware, though, that the federal government defines a small business as “a business employing 500 employees or less,” which is the definition many banks use,” Vicaro said. “That’s not the profile of what most people think.” And while commercial banks typically offer lower interest rates than other businesses, their strict eligibility requirements can make it difficult for small business owners to qualify. Before you immerse yourself in the application process, Vicari advised small business owners looking for bank loans: “Go to your local branch, speak to the loan officer and show them your business plan. Tell them your story. They will tell you if they have an appetite for that type of loan or not.”


This financing option allows small businesses to raise funds from large numbers of people, often through online platforms. It has become an increasingly popular way to fund business ventures. Crowdfunding can provide small businesses with access to capital that may be difficult to obtain through traditional financing options. Vicari cautioned that these campaigns can be “hit or miss.” They may not be successful, he said. And if entrepreneurs don’t reach their goals in the effort, they “may be left with no funding and wasted time and resources.” 

If you do want to try crowdfunding, he recommended reaching out to America’s Real Deal, a crowdfunding platform that coaches and consults qualified companies on how to raise as much as $5 million through equity crowdfunding. “I like that they prepare the client first,” Vicari said. “They have a very intensive program to prepare people before the crowdfunding. It’s not a scattered approach, which crowdfunding can sometimes be.”


These funds, awarded to businesses for specific purposes, are highly sought out. That’s because grants don’t need to be repaid, making them a low-risk source of funding for small businesses. Grants, though, can be highly competitive and offer limited flexibility, Vicari said. And many are restricted for specific uses. To see what sorts of grants are available, Vicari recommended Grants.gov, the official government website where you can search and apply for grants from various federal agencies. Additionally, many state and local economic development agencies offer grant programs to support small businesses within the agencies’ jurisdictions, Vicari said. He advised entrepreneurs to check with their state and local economic development agencies to see what grant programs are available. 

Private Investors

These individuals or groups provide funding to small businesses in exchange for ownership stakes or the promise of returns. They can provide a significant amount of funding that may be difficult to obtain through traditional lenders or grant programs and can offer expertise and support to help you grow. However, partnering with them can result in a loss of some control over your business, Vicari said. When looking at private investors as sources of financing, understand their motivations and backgrounds. “Before you go to an angel investor, I’d want you to know the experience that investor has in your industry because if you don't have experience in your industry, how are they going to provide you the guidance to grow?” Vicari asked. 

5. Compare Rates and Terms

Once you've identified potential financing opportunities, compare the rates and terms of each option to find the best fit for your business. Among other things, Vicari said, “you want to look at interest rates [the cost of borrowing the money]; any kind of balloon payments; the length of the loan, making sure to consider whether the repayment schedule is feasible for your business; and any prepayment penalties.” The goal, with an infusion of cash, Vicari said, “is to make money here and get out of debt and pay it off early as you can.”

6. Be Cautious of Scams

Before signing anything, make get advice from a trusted source. “Unfortunately, there are many scams targeting small business owners looking for financing,” Vicari said. These scammers may pose as legitimate lenders or investors and offer attractive financing terms or promises of quick approval but then require upfront fees or personal information that can be used for identity theft. “If a deal sounds too good to be true, then it probably is,” he said. “Don’t fall prey to people that promise things that have no numeric justification for an abstract value.” In particular, keep an eye out for upfront fees, guaranteed approvals, unsolicited offers and pressure to act quickly, Vicari said.

The biggest way to ensure confidence about your financing is to seek advice from someone with experience. Vicari noted: “When you know where the potholes are, then you can get started on your journey without hitting any of them.”

By Rebecca Meiser

Contributor, Commerce + Communities Today and Small Business Center

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