The fundamentals of small business funding

Why do you have to spend money to make it? That seems unfair, frankly!

But the good news is, you don’t necessarily have to spend your money! In fact, ideally, you shouldn’t.

If you’re planning to launch a small business or scale an existing one, either way, you need cash. But conventional wisdom suggests that money should come from others before you even think about breaking your piggy bank.

So, let’s dig into the fund-amentals and learn how to secure the capital you need to succeed!

1. It’s easier than you might think to get funding

Entrepreneurs may feel daunted by the funding aspect of their new endeavors. Don’t be!

Most of the concerns come from common misconceptions or a general lack of experience. The truth is, you don’t need a revolutionary product or paradigm-shifting service to secure funding. You mainly need an airtight business plan—and a list of people to show it off to!

Here’s a rundown of the top lending avenues to check out:

  • Bank Loans/Lines of Credit – Bank loans and lines of credit are a tried-and-true method of getting money for your business. Along with your business plan, you’ll need to show up with good credit and perhaps a bit of collateral in some cases.
  • Small Business Administration Loans – The Small Business Administration exists, in part, to help people in your situation! They feature a wide range of loan programs and may offer better terms than banks.
  • Business Incubators – Baby businesses grow nicely under the protective wings of incubators and accelerator programs, which provide everything from funding to mentorship—plus a built-in network!
  • Angel Investors and Venture Capital – Some investors only trade stocks. Angel investors bet on startups, giving upfront funds for a piece of the pie. They also offer seasoned mentorship, because your success is money in their pockets. Venture capital firms operate under a similar model but may demand an “exit strategy” to get paid.
  • Crowdfunding – Why not ask a group of strangers to pay your way? Crowdfunding is a new-ish but relatively viable method of garnering funds by simply asking lots of people to donate small amounts!
  • Grants – Grants are financial gifts that don’t have to be paid back (but they do come with several eligibility requirements). Grants may be given out by government agencies, private foundations, or corporations.
  • Last Resorts – Many people start by asking family or friends, but this can be a risky venture. Many startups struggle for years, and who wants to upset the people closest to them by borrowing money and not being able to pay it back? But perhaps the final “last resort” is tapping into your own savings. It may seem like the fastest, easiest route—but if things don’t pan out, you could blow your nest egg and get caught in a bind.

2. Common hurdles to securing funds

There are many sources of funding out there, but you’ve got to convince them why they should bother to help you. As mentioned, a rock-solid business plan is a critical step.

“A business plan is a document that defines in detail a company’s objectives and how it plans to achieve its goals,” Investopedia explains. It should outline your proposed product or service, your target market, an analysis of the competition, your killer marketing strategy, and your budget and financial projections.

Suffice it to say, lenders and investors are risk averse, so if your concept is the least bit shaky, it’ll be harder to secure funding. Even business ideas that traditionally seem profitable can raise concerns when market conditions are unfavorable. Your plan must address that, too.

But a business plan alone won’t secure your funding. You’ll have to prove your creditworthiness. Low credit scores, insufficient business credit history, and overextended credit lines can hurt your chances, at least when it comes to borrowing from banks.

Other red flags include having a high debt-to-income ratio or restricted cash flow (if you’re already in business but aren’t seeing a steady stream of positive cash flow). Meanwhile, entrepreneurs hailing from marginalized communities often experience increased scrutiny compared to their peers. And any borrower with a lack of business experience can expect added scrutiny. That’s why, ideally, you should list someone on your team (even if only in a consulting role) who has ample real-world experience running a successful, profitable business.

3. How to set your business up for success

Besides your business plan, what other steps do you need to take before seeking funding? Mainly, you’ve got to get your financial ducks in a row.

This includes getting your credit score as high as possible. Start by requesting a free copy of your credit report via the government-authorized website This report may not feature your actual credit score, but you can request that through Experian, Equifax, or third-party credit score-checking sites. Your financial institution may also be able to provide it for you.

Calculate your credit utilization ratio. If it is over 30%, you’ll want to do something to get that number lower fast! Otherwise, you either run the risk of not finding a lender, or being offered terrible interest rates.

If you’re not able to pay down your debt to get under 30%, another option is to apply for a new line of credit—but don’t use it. This increases your available credit, potentially getting your credit utilization ratio down.

Another vital step is to enlist experienced personnel. As serial entrepreneur Neil Patel notes, the third most common reason why businesses fail is not having the right team. So, as mentioned above, if you don’t have a ton of business experience yourself, find people who do to join your enterprise. The key personnel portion of your business plan will feature information about these savvy business pros on your team, and this will lend weight and credibility to your plan.

You can also impress lenders and investors with your financial acumen! For example, many businesses waste thousands of dollars on a full-time receptionist or chat agent, either of which can chew into your budget fast.

You do need people to perform these critical tasks, which are the key to winning and keeping customers in today’s era of sky-high customer service expectations! But you may not need a full-time staff to do them when a leaner, more affordable option is available.

Ruby offers virtual receptionist services to businesses of all sizes and specialties! Our virtual receptionists are available 24/7, 365 days a year, integrate seamlessly with your team, and are highly trained in providing exceptional customer service experiences—at a fraction of the cost of a full-time employee.

Show off your business prowess and demonstrate financial responsibility by teaming up with Ruby today!

Growth is within reach

Asking others for money sucks. But never give up! If you plan well and use your resources, you’re likely to secure the funding you need to meet your goals.

If you’re just getting started on your growth journey, check out Ruby’s Small business snippets series for more quick insights on all the basics you need to know—then, make sure to sign up for more advanced tips coming soon in Season 2!