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Top 5 Business Funding Misconceptions

In today’s economy, small business is the backbone of the American workforce. In the US, 99

Seal of the U.S. government's Small Business A...

Seal of the U.S. government’s Small Business Administration. (Photo credit: Wikipedia)

percent of all independent firms employ less than 500 employees. According to the Small Business Administration (SBA), these companies represent about 52 percent of the US workforce.

When broken out into business size, businesses with less than 20 workers employ 19.6 million Americans, businesses with 20-99 workers employ 18.4 million and firms with 100-499 workers employ 14.6 million Americans. With the autonomy to be your own boss and the sense of accomplishment associated with building something from scratch, it’s no wonder that the number of small business owners continues to rise.

However, many great ideas never get off the ground due to misinformation regarding funding. At Tenet Financial, we are here to help you get your business up and running in any way we can. So, here are the top 5 business funding misconceptions.

Myth #1 – Finding your own funding sources is easy. 

As an entrepreneur, securing funding for your business is crucial to prolonged success. Obtaining these funds on your own can be a long and tedious process, ultimately taking years to accomplish. Identifying and researching prospective investors with experience in your industry of expertise is generally how funds are successfully secured.

In this process, a business owner may be rejected multiple times, and each time is an opportunity to help build the business plan. It is no secret that one of the keys to securing outside funding is to have a solid business plan.

At many times, an entrepreneur may be a little overconfident about his/her product and may think that “it sells itself.” Funding partners, on the other hand, may not. That is why having an air-tight business plan and a fine-tuned elevator pitch are necessary for locking down a funding partner. Even with both in hand, it still may take months or years to raise the necessary capital.

Myth #2 – “It’s a numbers game: the more investors I contact, the more likely I can find funding.”

One of the worst ways to attempt to obtain funding is to send a mass email that begins with “Dear Sir or Madame.” Sending mass mailings is clearly the wrong approach and many investors view it as a waste of time, energy and, most importantly, money.

Most investors agree that they much prefer to be sought out by quality rather than quantity. Entrepreneurs should do the research and identify those investors that have a high level of success and knowledge in the industry of note.

Although it may not be a numbers game, it still is a sales game. Personalization of each investment request will help to improve the “closing” rate and will ultimately get the entrepreneur to the funding goal much more quickly.

Myth #3 – The SBA makes it easy to obtain funding 

The U.S. Small Business Administration exists to help small businesses find funding options. By their own definition, the SBA “provides a number of financial assistance programs for small businesses that have been specifically designed to meet key financing needs, including debt financing, surety bonds, and equity financing.”

Although the SBA is in business to help small business, their eligibility requirements may be too much to handle for many businesses.

Also, they lend to businesses, not people. So, they do require a high amount of collateral in addition to a solid business plan, or they may choose to only lend to established businesses with a proven track record of success (franchises.) It is best to consult a financial lending professional to see if this option is best for you.

Myth #4 – I can get government grants for my startup

There are federal grants available to small businesses. However, many of them are only available to scientific, medical, educational and non-profit institutions. If your startup does not fall into one of these categories, there’s a good chance your grant application will be denied.

Often times, businesses that acquire grants also depend on multiple sources of capital including that of lending institutions and private investors.

Additionally, there is a limited supply of funding and the process is very competitive. This avenue may be right for you if you are in the minority, however do not count on government grants for the lion’s share of your funding.

Myth #5 – Venture capitalists will fund my business

The truth in this is that venture capitalists will generally only invest in businesses that are already established and not ones that are developing. They tend to pool their monies and are extremely selective with applicants.

Tendencies to invest with so-called “safe companies” will limit their options to focus on candidates that have already achieved a large degree of success. Ultimately it is up to you to convince this funding source to invest in your business and having a robust and complete business plan will help you to do just that.

Finding a funding source that matches your business needs can be a long and trying process if you approach it on your own.

However, the funding professionals and Tenet Financial can assist in pointing you in the right direction. Don’t believe the myths, call get your business funded the right way by partnering with Tenet Financial today.

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