Funding for small businesses usually means finding business loans. As a sole proprietor you can use your person credit. A limited corporation will allow you to shield your person assets, but also reduces what you will be able to borrow. I mean how much would you loan someone who won't put up some risk? A partnership may allow you to leverage more than one person's credit, but it can also put that person at greater risk.
When we talk about funding for small businesses we usually are talking about starting with personal savings, credit, often credit cards and business loans. I have a friend who runs a string of gyms for women. When she started she had her car towed. She wasn't in the handicap parking, she had missed her payments. She started her business with saving and ran it on cash flow. I good line of credit would have really helped her, but her credit was maxed. Of course choosing the right partner would have helped. Once she got the business up and running cash flow took over and the same bank that towed her car was offering her business loans, but getting enough equipment to attracted customers was a problem, a big problem.
Another friend started a limited corporation planning on taking it public. This was a bio med company. His business went many of the options, of funding for small businesses, including business loans. They started as a limited partnership and worked on getting a few cell lines going. His partner was a researcher and got a grant. After that a business loan kept them going until a clever trick that made common bacteria look like anthrax allowed them to take advantage of a huge demand from bio companies making test for pathogens right after the anthrax attacks in the US. I mean do you want a vial of Deadly anthrax on your mad scientist desk of a vial of E. coli with a modified surface that looks like anthrax to antibodies?
With that cash flow they attracted investment group; corporate credit can be great. After that there was the IPO. Now they could fund with two options; debt or issue stock. At this point they were adding new products, using loans to fund this and the cash flow to pay bills. If they grow even bigger they could issue bonds. Bonds are nothing more than a special form of business loans. The last time I talked to him, he was looking for the door. He likes to build companies, not run them. This is another consideration with funding for small businesses; your exit strategy. If you put your house at risk to start a business, what return would you expect. Often this is where a person fails in business.
When looking at loans, take care not to dive too deep. My wife and I ran a business out of our home; a preschool. My wife loves kids and has a real gift with 3-5 year olds. It was successful; we started with a few hundred dollars in supplies and curricula and then ran it off of cash flow. We only advertized the first year, relying on word of mouth from the parents of former students after that. I never understood how she could take that pain and suffering three days a week but she loved having eight kids running amok. When we cashed out it was great. We had a big yard sale and had no one to debts to pay. On the other hand, I'm still making payments on my student loans from my MBA. Debt is fine, but it always takes longer to pay it off than you think it will.
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