Ask Stacy: Where Do I Find the Money to Start a Business?

As a business owner myself, I’m all about helping others start their own business, become their own boss and live their dreams.

Here’s this week’s reader question:

Hi, I am just starting a new business. I have done all of the filing and am at the point that I need startup capital and business lines of credit.

For the startup capital, will you help me in getting grants? Please tell me where I should look and apply that will not cost me to submit an application. And also, where do I find legit private lenders? Thank you. – Shaela

First, Shaela, congratulations on starting your own business. But let’s get you started on the right foot by avoiding making a big mistake out of the gate.

Are government grants real?

Like many rumors and rip-offs, the one about government grants contains a grain of truth.

The government does hand out grant money – but almost never to typical small businesses.

The government might give a grant to a university, for example, to explore the efficacy of an experimental drug. There are also grants through the Small Business Administration, or SBA. They include the Small Business Innovation Research and the Small Business Technology Transfer programs. But as the names imply, these grants are about research and high-tech innovation, not working capital for business startups.

If you see a site or ad promising grants to just about any small business, run the other way, especially if there’s a fee. Uncle Sam says in black and white he doesn’t do that. From the SBA website:

The federal government does NOT provide grants for starting and expanding a business.

Government grants are funded by your tax dollars and therefore require very stringent compliance and reporting measures to ensure the money is well spent. As you can imagine, grants are not given away indiscriminately.

Grants from the federal government are only available to noncommercial organizations, such as nonprofits and educational institutions in areas such as medicine, education, scientific research and technology development. The federal government also provides grants to state and local governments to assist them with economic development.

In short, there’s virtually no such thing as free money in the form of federal government grants to start or fund a for-profit business. Anyone promising one, especially in exchange for a hefty fee, is quite likely to be a thief.

So, Shaela, don’t waste your time, and especially your money, filling out forms and paying fees to companies promising something they can’t deliver. Instead, invest some time in exploring the SBA.

What the SBA can do for you

I’ve done several stories over the years about the SBA. Funded by taxpayer dollars, it’s definitely your first stop on the road to self-employment, especially if you’ll be requiring funding. You won’t find free money, but you will get free information on finding funding, including government-guaranteed loans.

You’ll also find helpful people, including potential mentors who will take a personal interest in you and your business.

Here’s how the SBA can help every step of the way:

And that’s just the tip of the iceberg. You won’t find a more thorough source of critical information for small-business owners than the SBA site. And don’t stop with just online reading. If you have easy access to an SBA office, visit in person. You’ll find friendly people, encouragement, expert advice and even workshops designed just for you.

Keep in mind, however, the SBA doesn’t loan money. What it will do in certain circumstances is guarantee a bank loan. That is, if you qualify. But as I mentioned, the SBA has tons of information on every type and source of funding out there.

Where do you find legitimate private lenders?

When you read about angel investors or venture capital groups ponying up millions to help small startups, or watch shows like “Shark Tank,” it’s easy to conclude there’s tons of money out there dying to find you.

Unfortunately, nothing could be further from the truth.

Unless you have major league connections, a monster resume, the best idea since sliced bread, and lots of your own money at risk, most potential lenders won’t touch you.

You can’t blame them. Think the stock market’s risky? Try putting your savings into someone else’s small business. According to the SBA, only half of new businesses make it five years and only a third last 10. Those aren’t great odds.

Which is probably why, according to a survey released in January, 86 percent of small businesses in 2013 were started with personal savings. That includes this one. Money Talks News was bootstrapped, meaning it’s funded entirely by my personal savings and whatever profit it generates. 

That’s not to say you shouldn’t try to approach private lenders, especially if you know people who believe in you. Next to personal savings, the largest source of startup capital for small businesses is family and friends.

But whether you know the right people or not, start with the SBA. Make a business plan. Get a mentor from the SBA Score program. Check out the SBA’s Access Financing search tool. Network, while developing both your plan and your pitch. Be honest about your prospects, with both yourself and others. And be prepared to put your life savings at risk.

I’ll leave you with this, Shaela. Over the last 20 years, I’ve started three businesses. The only time anyone ever offered to lend me money was when I didn’t need it.

Got a money-related question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter. If you’re not subscribed, fix that right now by clicking here.

The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

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Comments & discussion

We welcome your opinions, but let’s keep it civil. Like many businesses, we reserve the right to refuse service to anyone. In our case, that means those who communicate by name-calling, racism, using words designed to hurt others or generally acting like an uninformed bully. Also, comments that include links to email addresses or commercial websites typically aren't posted. This isn't a place to advertise your business.

  • marketfog

    Starting a new business is one where you need to know what you are doing. Do you have a business plan, a map of what you want to do and what you have to do? Do you have self discipline? Do you do what has to be done before you do what you want to do? If your business involves direct contact with the public: do you like to interact with people; can you work around the customer’s needs? Can you keep a promise date? Can you finish one job before moving on to the next one? My dad was a master electrician and did very well for himself and his customers. He always worked by himself except when he needed his kids help. He never hired an assistant. He used an old beater for his vehicle. He never advertised because he had a great reputation and didn’t need to. He often worked at night and Sundays when his customer’s businesses were closed to avoid disturbing the business. He would do the dirtiest jobs that no one wanted because they were dirty. He used a regional wholesaler that delivered to the house to keep costs down and minimize lost time going to local wholesalers. He was a good planner. Compare this to my friend. He was a licensed electrician. Good, he had the technical skills. He started his own business. The first thing he does is buy 2 new trucks. He doesn’t understand the term “Promise date”. He has an employee, but no business reputation. He fails because he doesn’t understand what’s necessary to have a successful business. Besides things like this,gambling, drinking and randiness will kill a business.

  • Sturgis

    I am a commercial Lender. My bank offers loans to many different sized companies. When we hear the words “start up” we run the other direction. 90% of start up businesses fail within the 1st two years. Best advise is 2 things: 1) if the start up Capitol needed is small enough, take out a personal loan. 2) if the start up is too large you need investors. Banks are not investors.