Guide to Start-Up Financing for Illinois Small Businesses

Have you ever wondered how your favorite local business got started? One thing all successful start-ups have in common is business capital. Whether you are self-funded, borrow money from friends and family, or receive a loan, all businesses need money to launch. Unfortunately, of the new businesses that fail during their first two years, insufficient funding is one of the top reasons.

In this article, we’ll help you get off on the right financial foot with a list of start-up funding options, from grants and angel investors to more traditional loans.

Before You Begin: Write a Business Plan

This is probably the most important part of the start-up process. Writing a business plan is an exercise that will help prepare you for and guide you through the business start-up process. Among many other important details, this process will help you determine what your costs will be to start your business, budget for that process, and avoid surprise expenditures. Covering those costs in advance is much better than dealing with them as they arise, during a time when most start-ups are not producing enough revenue to cover surprise expenses. Many helpful guides and templates exist on the Internet, such as this one here.

Self-Funding

While it may not be realistic for everyone, many entrepreneurs use personal savings and credit lines to finance a new business. That could mean dipping into your 401(k) or IRA retirement accounts, using a personal credit card, or tapping other cash reserves.

Borrow from family or friends

Next to self-funding, your personal network may be a good source of funding for your new business. Of course, mixing money and personal relationships can be tricky. Be clear about whether you’re asking for a loan or an equity investment and make sure you use an attorney to draft the paperwork and set the terms of the loan.

Before you ask for help, prepare a detailed business plan with financial projections and other data that shows you’re taking your new business (and their money) seriously. Be clear about the risk involved, especially with an equity stake.

Crowdfunding

If you already have a following on social media, you could use that platform to generate a specific amount of money through pledges. If not, it could be hard to gain traction and visibility for your project. For context, less than half of all Kickstarter campaigns reach their target number.

If you do go the crowdfunding route, review the various sites such as Kickstarter, Indiegogo, and GoFundMe to find the best fit for your niche. You’ll need to figure out what kinds of gifts or other incentives you can offer to people who pledge. And you’ll definitely want to invest time in creating a compelling story and high-quality visuals to share.

Grants

Unlike a loan, a grant doesn’t need to be repaid. Business start-up grants tend to be on the smaller side, so don’t expect a grant to provide all the funding you need. However, it can be a helpful boost as well as a way to connect with other entrepreneurs and organizations.

Grant programs are usually tailored to specific niches, whether the type of business, location, race or gender of the business owner, and more. To apply for a grant, you’ll need to write a proposal. Professional grant writers can always be hired to help if you need it.

Looking for small business grants? Check out this list of SBA-associated award programs.

Angel Investors

This is another alternative to loans. If you’ve ever watched the show “Shark Tank,” you’re probably familiar with angel investors, who buy a share of ownership in your company through equity investments.

Hoping to connect with an angel investor for your business? The SBA maintains a network of SBA-licensed Small Business Investment Companies (SBICs).

Small Business Lending

Now that we’ve looked at alternatives to small business loans, let’s review the most common types of small business financing.

Personal loans

A personal loan is a type of unsecured financing that can be used for a variety of purposes, including business funding. You’ll need a good credit score and debt-to-income ratio to qualify. Loan limits and terms vary.

Bank Loans for Businesses

If you already have a business checking or savings account, you’re on your way to building a lifelong relationship with your business banker. This will come in handy when it’s time to borrow money. Community banks like Town and Country Bank and Peoples Prosperity Bank are known for their willingness to lend to smaller businesses and entrepreneurs when bigger banks necessarily won’t.

Bank loans for businesses include:

• Business Term Loans: Can be used for a wide range of business needs
• Equipment Loans and Leasing: Purchase new or used equipment such as machinery, computers, and more.
• Commercial Real Estate Loans: Purchase, build, or refinance a commercial property.
• Agricultural Loans: Agricultural production lines of credit and farm real estate loans
• Home Equity Loans: Use the equity in your house to finance your business and/or refinance higher-interest business debt.

Banks also serve as SBA loan lenders, which we’ll cover next. As a Preferred SBA Lender, we can offer qualified companies our best rates and extended terms for a variety of business needs.

Small Business Administration (SBA) Loans

The SBA makes it easier for small businesses to access financing by serving as a guarantor for a portion of the loan. This enables community bank lenders to provide flexible terms and competitive rates. The two primary types of SBA loans are:

• 7(a) loans: These “working capital” loans come in a variety of amounts and can be used for just about anything related to your business.
• 504 Loans: Fixed-rate financing most often used for owner-occupied commercial real estate but may also cover heavy equipment and assets used to modernize or expand your business.

The Illinois Small Business Development Center (ISBDC)

This free service is provided in connection with the SBA. Locations are available in many communities for anyone who wants to start a business but isn’t sure where to begin. Our local ISBDC rep in the Greater Springfield area is Kevin Lust who does a great job working with entrepreneurs.

Town and Country Bank and Peoples Prosperity Bank can help!

Town and Country Bank and Peoples Prosperity Bank has a rich history of investing in Illinois small businesses in communities throughout Central Illinois and the Metro East. Let us help you get your first business started! We offer a full range of business banking services including various accounts, lending options, treasury management services, and more. Check out our other blog articles for entrepreneurs:

• “Tips For Starting Your First Business”
• “Marketing Tips To Get Your Small Business Noticed”
• “The Small Business Guide To Merchant Payment Options”
• “SBA Loans: Everything You Need To Know To Start The Application Process”

Request a business financial review with one of our experienced business bankers or contact us today to learn more about business financing options!