What to Know When Financing a Start-Up Today

Few could argue that small business start-ups face different challenges today than they did circa-2019. While starting a small business has always required careful planning, doing so in a post-pandemic economy requires a thorough review of your financing options before making an investment.

Here's what you should know if you plan to finance a start-up in the near future.

Your start-up budget typically includes five main expenditures.

1. Office Space

Whether you decide to lease an office or work from home, add the associated expenses to your start-up budget. Some lease agreements require security deposits and pre-paid rent before you make your first dollar. Others may offer free rent for the first several months of the lease to attract renters after long-standing vacancies. Gather quotes on multiple spaces since rental rates can vary widely along with minimum rental periods.

Working from home also has its costs. While you won't be paying a landlord to rent the space, factor in the increased cost of utilities since you'll be at home most of the day. You may need to add the cost of switching to a new internet service provider that can offer business-grade internet service to support increased online activity.

2. Equipment and Supplies

Outfitting your workspace with office necessities can be costly if you don't prepare in advance. Plan for essential equipment and supplies that can get you operational quickly. Items might include a sturdy desk, comfortable chair, a laptop, printer, business productivity software, cybersecurity software, and office supplies.

3. Product Inventory

Before you declare yourself open for business, you'll want to make sure you have enough products available for purchase. Running out of product in the first few months of business could stifle growth and harm your reputation. Refer to your business plan or perform market research to determine how much inventory you'll need during the first six months of your business.

4. Start-up Fees

The last thing you want is to have your business shut down within days or weeks of opening it because you failed to comply with regulations. This could happen if you don't obtain the license, permit, or insurance needed to operate in your local jurisdiction. Visit your state comptroller's website for a list of the required applications and fees.

5. Marketing and Promotional Materials

While referrals and recommendations from satisfied customers are ideal, you won't have those initially. Be prepared to pay for website hosting to establish an online presence or other promotional materials to give your business the kickstart it needs to let the world know you're open.

Multiple financing options exist.

After you've estimated initial expenses, it's time to figure out how you'll pay for them. You could self-fund your start-up using savings or explore financing options available through Town and Country Bank and Peoples Prosperity Bank. Overall, an important item that start-up businesses need to consider is the idea of building in six months of working capital into their business plans. One of the main reasons start-ups struggle initially is due to under capitalizing.

After you've filed the required business documents in your jurisdiction, you can use them to open one or more business-related accounts at a financial institution. Options include:

• Business loans, which include traditional business loans, SBA loans, USDA loans, and Illinois Advantage loan programs. Each program is designed to fit a different situation and can be used to fund everything from real estate purchases and renovations to inventory, marketing, and working capital.
• Business lines of credit offer the flexibility of having a preset credit limit from which you can draw down money as needed. They provide a convenient way to ensure your business remains operational even when you have slow accounts receivable.
• Business credit cards, which are often the go-to choice to pay for most small start-up expenses. Use it instead of your personal credit card to avoid record-keeping issues come tax season.

Regardless of which financing option you choose, include a line item in your budget for repayment.

Small business start-up resources exist at federal, state, and local levels.

Financing options are available from a wide variety of sources. City, county, and state governments offer multiple programs to support small business start-ups. Financial institutions, such as Town and Country Bank and Peoples Prosperity Bank, also offer lending solutions with competitive interest rates to fit your financing needs. Explore your options by selecting from the resources listed below.

Small Business Start-up Resources

• U.S. Small Business Administration: Calculate Your Startup Costs
• Illinois Department of Commerce and Economic Opportunity
• Town and Country Bank and Peoples Prosperity Bank Business Lending Options

Business start-up costs can vary widely. Your industry, geographic location, and initial resources can determine how much cash you'll need to get your business up and running in a post-pandemic economy. Request a business financial review or contact one of our Commercial Bankers today to learn more about financing options for your start-up business.