Small business financing is one of the most difficult aspects of operating a small business. Small businesses are privately held corporations, partnerships, or singular ownerships that typically have much less annual revenue and employees than a large corporation or normal-sized business. For this reason, the owner(s) often must obtain a loan to fund the business expenses. Financing small business operations often involves meeting with different lenders to obtain the best interest rates, and it can be confusing when beginning the process.
The definition of a small business refers to those who conduct business in the United States. In most cases, the owner does not require a license or special certification in order to conduct business, but some states do require minimal filings as an effort to protect small business owners from fraud and other illegal transactions. Some examples of paperwork required in many states include income tax returns, business licenses, and sales tax documents. Additionally, state and local governments often require financial reports such as credit card and bank statements.
Small businesses may employ a variety of methods to raise capital, including selling products and services, issuing invoices for products and services sold, receiving loans from customers, and borrowing money from investors. A growing trend among small businesses is raising capital through venture capital, which is provided by private equity firms, banks, and other sources. Venture capital represents the investment of a company’s profits in order to finance operations and growth.
Many government agencies and private lenders to provide small business financing, including the Small Business Association, which requires annual reports on business finances and trends. To qualify for SBA loans and grants, business owners need to have at least two years of income history, at least two years of business experience, and a credit score of at least 650. Also, all SBA-insured businesses and their owners are required to complete a comprehensive financial report that details their business expenses, revenue, working capital, and debts.
Another way that federal agencies to help small businesses financially is by providing programs that provide tax relief for small businesses. The tax reduction primarily affects those businesses that are considered low-income and offering services or goods to the community, such as nonprofit organizations and hospitals. For these types of businesses, there are several different programs that can eliminate up to one-third of their federal tax liability.
In addition to federal programs, state and local governments offer a variety of SBA loans and other assistance for small business owners. Most significantly, these programs aid communities through advertising, marketing, and promotional campaigns to promote businesses. Community development is a key priority for most local and state government agencies, which has led to the creation of thousands of public relations and marketing programs. Additionally, these programs provide business owners with financial incentives, such as low interest rates and property tax exemptions, which lead many to start their own business.
Finally, a growing list of government agencies are helping small businesses through various types of small business grants. As the number of small businesses continues to climb, more local and state government agencies are requiring organizations to submit detailed grant applications in order to receive funds. These programs are expected to grow substantially over the next few years as more government agencies discover the value in supporting small businesses in the community. Government grants for business owners can provide cash to help offset start-up costs, as well as lower operation costs in areas such as website development and business marketing.
No matter what type of financing options a business may use to finance its ventures, it’s crucial that these ventures are utilized wisely. Many businesses attempt to take on too much debt without properly planning for the long-term. Additionally, many businesses fail to adequately plan for the needs of their employees. Proper funding and financial planning are vital to ensuring the long-term success of these ventures. This list of federal and state assistance programs highlights just a few of the hundreds of opportunities available to businesses seeking assistance. Because there are so many opportunities to obtain federal and state government business grants, small business owners should be encouraged that they do not need to borrow excessive amounts of money in order to start or expand their businesses.