One of the challenges facing a startup small business is funding or finance. Where to get the money to get this new small business up and running. This is surely the biggest obstacle to every business, and the one that prevents many businesses even getting off the ground.

Generally small finance has a few routes chose from when it come to financing and funding.

Bank Loans tend to be a pretty onerous route to take. Banks demand all sorts of collateral as well as a formal and very detailed business plan. Banks often make it tough to give you a loan and today with the credit crunch and difficult economic times even more so. They could demand collateral such as the business owner’s assets like perhaps his home, if owned. Banks also may have stipulations and conditions in the loan agreement which can be tough to meet. For example banks may demand that you rent the space that you want to use for your business, rather than buying the space. The reason is they do not want you tying up money in assets that offer no short term return. They may stipulate that you use the money for inventory, which has some almost immediate value in the form of goods for resale, rather than buying the building. Naturally bank loans come with interest charges. So often these loans come with multiple strings attached. The amount of finance and the type of business as well as the business owner’s personal financial record are key to the receiving of any kind of loan.

Government Grants are another route. The US, Canadian as well as many European countries have government departments, state run corporations or government sponsored programs that specialize in grants and aid and some even give loans for small businesses. Local and State government often do the same.

Friends and family are also another avenue to sourcing startup funds. These are often a good source because they know you and trust and believe in you. The downside is that they may believe that since they loaned you the funds, they have some say in the running of your new small business. The upside is that interest charges if any, can be easily negotiated unlike dealing with a financial institution like a bank.

Dipping into personal savings are another way to fund your business. This must be the most common way of funding your business, though normally used in combination with any of the other methods. The big advantage is there are no interest charges which other loans and no expectations from family or friends either.

The last source that I will cover is that of private investors, venture capitalists or partners. If you have a great new idea for a business, and you can sell this idea to them, they can be a great source of funding. Naturally the business idea will really have to be well thought out and the profit projections really good for them to dive in. The number of small startup companies in the USA in the high tech and computing sectors that became huge successes are legendary. Google is one such example. The downside to this method is the idea has to be unique as well as viable and of course this kind of funding normally comes at a big price. Not interest charges, but often a controlling interest in the ownership of the company.

Source by Mark Bergman