Everything You Need to Know About Small Business Financing

yes
4 minute read

As a small business owner (or an aspiring one), you might be wondering how you’ll raise enough money to fund your endeavor. Starting a business costs money, and securing financing can seem nearly impossible in the beginning. However, there are many ways to ensure you’re on the right track. 

Here’s everything you need to know about small business financing.

 

Finding the Right Accountant

Hiring an accountant for your business is crucial, though many entrepreneurs fail to do so. They assume they can handle their finances on their own, only to learn — the hard way — how important it is to let an expert take over for you.

When searching for an accountant, consider the following:

  • Convenient location.
  • Proper certifications.
  • Relevant experience.
  • Proactive about saving money.
  • Matched software.

In your search, take time to leverage your personal network, interview multiple candidates, run background checks and negotiate fees.

For more information, check out our guide on finding the right accountant.

 

Banking

Every business needs its own bank account. While you might be tempted to use your personal account for business income and expenses, it’s necessary to separate your business and personal finances so you can keep everything organized and trackable come tax time.

When choosing a bank, you’ll want to consider the following:

  • Available financial products, like a credit card, line of credit, business loan, etc.
  • Account features, like online banking, interest on savings/checkings, direct deposit, etc.
  • Fees and opportunities to waive them.

Once you choose your bank, research their options before opening an account. Then, gather the right documentation, fund your account and put it to work.

To learn more, check out our article on opening a business bank account.

 

Small Business Loans

There are various funding options for small business owners, but loans are among the most reliable. The four most popular sources include:

  • Traditional loans, which often require a good credit history.
  • Online lenders, which are often easier to borrow from than a bank.
  • Personal loans, which are an alternative to a traditional loan if you have a high personal credit score.
  • Microlenders, which are typically government organizations like the Small Business Administration (SBA) or nonprofits that offer small loans.

To obtain such loans, you’ll have to pitch yourself to banks and other potential lenders. Write a business plan that lays out your market research and understanding of the industry, supports your financial projections with credible data, and includes a clear business model and marketing plan. Additionally, make sure your business and personal credit scores are up to par.

For more advice on which funding option to pursue, check out our guide on how to fund your business.

 

Crowdfunding

Can’t or don’t want to take out a loan? Crowdfunding is another great opportunity for small businesses. There are many types of crowdfunding, the most popular including:

  • Equity.
  • Donation.
  • Rewards.
  • Debt or microlending.

Crowdfunding has various perks, like increased publicity and exposure, and access to a larger pool of investors. To set up your campaign, join one of the many crowdfunding sites like Kickstarter, Indiegogo, RocketHub, Patreon, CircleUp, Lending Club and GoFundMe. Then, simply tell your story — and don’t be afraid to get personal. Those who connect with and believe in you and your business will be quick to show their support.

To learn more about crowdfunding, check out our article on the topic.

 

Accounting

If you don’t hire an accountant to handle your finances for you, you’ll want to ensure you’re adhering to best practices. First and foremost, make sure you’re using and integrating the right software and systems so your entire accounting process is both automated and streamlined.

From there, you’ll want to involve key staff in your accounting efforts. Educate them on the software you use, as well as other accounting basics, and ensure you’re all working seamlessly together. Additionally, you’ll want to maintain internal controls, restricting access to certain assets and private information. There are many important financial responsibilities in running a business — like authorizing and recording transactions, procedures and policies related to banking and cash, accounts payable and purchases, accounts receivable and sales, and financial reporting — and you don’t want to give these responsibilities to just anyone.

For more tips and tricks, check out our article on best practices for accounting.

 

Business Insurance

Purchasing business insurance might seem intimidating, but it’s essential to the protection of your assets. You don’t want to settle for just any insurance. In fact, the nature of your business will help you determine what you need in terms of coverage. However, there are a few basic types you’ll want to consider:

  • Property insurance.
  • General liability insurance.
  • Business vehicle insurance.
  • Workers’ compensation insurance.
  • Product liability insurance.
  • Professional liability insurance.
  • Business owner’s policy (umbrella policy).

Your best bet is opting for an umbrella policy that covers as much of the above as possible. However, make sure you aren’t over-insuring or under-insuring your company. Doing either can end with a heavy financial burden.

For more information on how much insurance you need and saving insurance premiums, check out our guide to choosing the best business and liability insurance

 

Taxes

Depending on what you sell, your company may be obligated to pay sales tax, which is imposed by state and federal governments on various goods and services. Typically, you’ll collect the fee from your customers at the point of purchase. 

However, first, you’ll have to register to pay sales tax by obtaining your Employer ID Number (EIN), finding the tax authority in your state that oversees sales tax, registering for a sales tax permit, then determining your company’s sales tax rate. From there, you’ll be expected to both collect sales tax from customers and filing sales tax reports with your state.

In addition to sales taxes, you will also owe self-employment taxes to the IRS throughout the year to cover federal expenses like Medicare and Social Security. The amount you owe is based on the amount of self-employed income you bring in through your business. If you’re unsure of how to calculate your tax liability, consult with a tax or accounting professional.

Interested in learning more? Check out our guide on sales tax collection and payment.

Funding your small business might be intimidating, but by following these steps, you can improve your company’s financial health and keep on top of your obligations as a business owner.