A small business is one that has a small number of employees, usually fewer than 100. However, the legal definition of "small" often varies by country and industry. These businesses are normally privately owned companies, partnerships, or sole proprietorships.

Getting started.

Starting and managing a business takes huge amount of research and planning. Developing a business plan is vital for the success of a business. Studies have found that poor planning is responsible for most business failures. A good organization of financials, production, inventory, and schedules can help one to avoid many pitfalls. The development of a business plan forces one to think through some important issues that otherwise might have been ignored. The plan, besides becoming a valuable tool to raise money for the business, provides milestones to gauge one’s success.

A business plan serves as a firm's resume; it precisely defines the business, and identifies the goals of the business. While it might be that poor planning is responsible for most business failures, inadequate or ill-timed financing is a close second. A sufficient ready capital is essential for either starting a business or expanding one. However, it is not enough; a part of the total investment would need to be financed from outside sources. Knowledge and planning would ensure that the entrepreneur is able to avoid common mistakes like securing the wrong type of financing, miscalculating the amount required, or underestimating the cost of borrowing money.

Basic ways to finance a small business.

Financing a business can be done through either equity or debt financing. When looking for money, the entrepreneur must consider their company's debt-to-equity ratio, i.e., total debt by total owner's investment.

A company with a high equity-to-debt ratio should probably seek debt financing, and for a company with a high debt-to-equity ratio, the owner should try to increase their ownership capital (equity investment) for additional funds.

Most small businesses use limited equity financing. The most common source of professional equity funding comes from venture capitalists. They are institutional risk takers and may be groups of wealthy individuals, government-assisted sources, or major financial institutions.

Sources for debt financing include banks, savings and loans, commercial finance companies, and the U.S. Small Business Administration (SBA). Other sources include non-professional investors such as friends, relatives, employees, customers, or industry colleagues.

Federal grants to small business.

While the SBA does not offer grants to start or expand small businesses, it does offer a wide variety of loan programs. (For more information see http://www.sba.gov/financing). The grant programs offered by SBA are generally designed to expand and enhance organizations that provide small business management, technical, or financial assistance. These grants generally support intermediary lending institutions, non-profit organizations, and state and local governments. SBA on its part, however, does offer plenty of free help in planning how to start or improve the business and in securing low-interest SBA-backed small business loans.

Professional help from SBA

The SBA Small Business Development Centers (SBDCs), provide professional counseling, training and technical assistance in all aspects of small business management including writing a business plan, getting a loan, marketing, licenses and laws, selling to the government, patents and copyrights, selling abroad, hiring employees, and buying the right equipment. These services are for anyone interested in starting a small business for the first time, or improving or expanding an existing small business. These services are offered by SBA free of charge. Special SBDC programs and economic development activities include international trade assistance, venture capital formation, rural development, technical assistance, and procurement assistance.

The SBDCs also make special efforts to reach members of socially and economically disadvantaged groups, minorities, veterans, women and the disabled. They offer their services through a network of nearly 1,000 service locations across the U.S. These centers develop their services in cooperation with local SBA district offices to ensure statewide coordination with other available resources. The SBDCs also provide assistance to small businesses applying for Small Business Innovation and Research (SBIR) grants from federal agencies.

Information on SBA Loan programs

SBA loan programs, operated through private-sector lenders that provide loans which are, in turn, guaranteed by the SBA, lend to small businesses unable to secure financing on reasonable terms through normal lending channels. The Agency on itself does not have any fund for direct lending or grants.

SBA loan programs available include,

1. The 7(a) Loan Guaranty Program offers loans of up to $2,000,000.

2. The Certified Development Company (CDC) is a 504 Loan Program
providing long-term, fixed-rate financing to small businesses to acquire real estate or machinery or equipment for expansion or modernization.

3. The Microloan Program offers loans of up to $35,000 to qualified start-up, newly established, or growing small business concerns.

4. The Targeted Loan Programs, besides the general programs described above, are designed to meet specific needs.

5. The Gulf Opportunity Pilot Loan (GO Loan) Program has been initiated by SBA to expedite small business financing to those communities severely impacted by Hurricanes Katrina and Rita.

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