Although some people are born with a proverbial “silver spoon” in their mouth that starts providing them with trust account funds at a very early age, most of us have to earn every penny we ever live on. This is one of the main reasons that starting a new business can be financially challenging to so many people.                                                                                                                      

Common exceptions to this problem are people who’ve waited to do this later in life when they have ample savings or those who can easily borrow all of the money they want due to significant collateral. Still others may have inherited sizeable wealth or have very wealthy partners or co-owners who can easily provide all of the necessary start-up capital. 

What’s Considered a “Small” Business?                                                                                           

For most of us who want to start a new business, we need to meet with experts to find out what types of financing are available to businesses of the size that we’d like to create. Of course, the definition of a “small” (for-profit) business can vary from industry to industry -- according to the Small Business Administration (SBA).                                                                                 

However, as a general rule of thumb, many people who aren’t tied to government financing programs often speak of small businesses as those that employ fewer than 500 workers. This means that roughly 80% of all American businesses fall under this general designation – or about 27.5 million companies.  

The following information will give you an idea of how many small businesses secure the financing they need while starting up. Of course, as they grow and perhaps desire to change their business structure to a partnership or corporation, their higher assets and new status will almost certainly open up many new doors to meet their financing needs.

Most Common Ways that Small Businesses Obtain Financing                     

  • They contact community banks or local credit unions for help. Until strong lines of credit are established for your business, you’ll usually do best if you’ll contact a local community bank or credit union to see if they can meet your needs – should you be unable to secure a loan or grant through the SBA (Small Business Administration). Just set up an appointment with your local banker or credit union employee to learn more about their underwriting, loan standards and other requirements;

  • They obtain a loan based upon their business’ accounts receivable. If you cannot obtain a loan simply based upon the collateral you (and your possible partners/co-owners) have, ask if you can borrow against your established accounts receivable. You should be able to find a lender at some point who will consider loaning you money based upon roughly “75-80 percent of the value of all receivables” that the lender considers trustworthy. A concept of “factoring” is often used with such loans;

  • They turn to local finance companies. Depending upon the size of the city where you’re company is located, you should be able to find several finance companies.  However, they should probably be among your last choices for funds since many of them charge rather exorbitant interest and fees for their services;

  • They obtain help from either purchase order financing or a merchant cash advance. The former involves finding a lender who will loan you money based upon one or more of your largest purchase orders; this involves a process similar to the “factoring” referenced above. A merchant cash advance is one granted by a lender who is willing to loan you money based upon the lender collecting “a set percentage of  your company’s daily credit card receipts.” Of course, both of these options should also only be considered (due to their high fees) when no other lending resources are available to you;

  • They pursue inventory financing. This is basically what the term implies, obtaining a loan based upon the size and value of your current business inventory. The lender will expect to be paid as you sell off your inventory;

  • Some new businesses will seek out unsecured lines of credit. Should you and your business co-owners be unable to obtain a “start-up” business loan of some kind, you may still be able to obtain an unsecured line of credit if your individual credit scores are quite high. However, the fees charged for such loans can be very high;

  • They may borrow from some type of Individual IRA. “For a fee, a handful of companies will help a small business owner invest part or all of a 401(k) or other IRA (individual retirement account) into [a] business.” Yet like many of the other options already noted above, you may have to pay some rather high fees to obtain money in this manner;

  • They may borrow funds from their own company’s (emergency) savings account. Obviously, this type of account is one you may need to leave untouched for other emergencies. However, it’s obviously very wise to establish a strong business savings account and keep it properly funded. Just use these funds when you have no other viable options.

Always feel free to contact your Peachtree City business attorney for additional ideas about how you should go about funding your business – as well as the closest local office of the federal government’s SBA (Small Business Administration).


To obtain help with handling all of your Georgia business planning needs, please contact Shane Smith Law today.  You can schedule your free initial consultation with a knowledgeable Peachtree City estate planning attorney by calling: (770) 487-8999.

Shane Smith
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