Show Me the Money: Funding Your Small Business


TAKSCO, LLC is a professional firm providing tax, customized accounting and strategic business consulting to clients in the Minneapolis-St. Paul Metro area.  The company was set up using personal resources (sometimes known as bootstrapping).  Since its founding in a couple of years ago, the founders have operated using skeletal staff and its operations have been focused on the U.S. domestic market. Management has embarked on an ambitious expansion plan to make the company more competitive, acquire more market share and possibly go global.

The firm’s immediate needs are: more office space, office equipment, hire and maintain more professional staff (attorneys and CPAs), supplies for the 2007 tax filing season, marketing and branding expenses as well as travel for senior consultants. These needs cannot be supported from revenue from current operations. Infusion of outside capital is required. 

Critical issues
As management ponders the various funding options, it is imperative that they determine how much money is needed. This requires some cash planning and realistic financial projections.  Getting too little or too much outside capital may lead to catastrophic results.

The managers should also state clearly how they plan to use the money. Every potential investor or lender would want a clear answer to this question.  Their interest is to assure that the money will be spent on the planned expansion and not unrelated personal expenses of the owners.

The amount of money a business receives from lenders and investors also depends on how experienced the business owners are. Closely tied to the success of a business is the experience and quality of management of the company. Investors and lenders alike will need to be satisfied that TAKSCO owners have the requisite training, experience and ability to manage the expanded business to profitability. 

According to the American Institute of Small Business (AISB), small business that show a desire to make more money, have demonstrated that they know how to spend the money wisely and know how to use other people’s money to grow, are have better chances of being funded.

Many small business owners do not think carefully through the process of seeking financing, often with disastrous consequences.  Bear in mind that regardless of the source, you must have a clear plan on the use of the funds to grow your business, otherwise you find yourself saddled with debt and headaches from new owners.

Debt vs. Equity
Generally, there are two options for financing a business: debt or equity.  Debt means that the business borrows the amount of money it needs, with an arrangement for repayment of the principal plus interest. This may come from family, banks, investors, local resources, and government agencies like the Small Business Administration (SBA).  TAKSCO could approach any of these for debt financing.

Equity on the other hand means trading an ownership interest in the business for the funding needed by the business.  In this case, the current owners of TAKSCO would cede a portion of their ownership in the company to new investors who would in turn bring in the needed cash.

There are advantages and disadvantages for either. Debt financing may be costly, depending on the amount of agreed interest or other terms of the debt. Equity means admitting new owners who now have and may be entitled to by law, a say     in the management of the company. re you ready for partners?

Either case, the decision has to be made, depending on the needs of TAKSCO and the overall growth strategy.
Sources of Funding

Debt Financing
Commercial Banks: This is usually done via a loan proposal or Business Plan. The objective here is to show the prospective lender that the business is sound and with a good profit potential. An effective business plan will contain such information as the company’s mission, marketing strategy, management and key financial projections. Businesses that do not have substantial assets or healthy revenues, the bank may look at the creditworthiness of the owners.  Many financial advisors counsel that you guard your personal credit as this may become handy in such cases. 

Some banks even require personal guarantees or collateral as a basis for making the decision to fund.

Small Business Administration (SBA):
SBA has numerous programs designed to meet the needs of small but growing businesses. The most common is the 7(a) Loan Guarantee Program, which has a maximum of $2 million can be used for virtually any legitimate business expense. 

Another well-known program is the 504 Program, normally for long-term financing needs such as the acquisition of land, buildings or heavy equipment.  These are delivered by Certified Development Companies (CDCs).

There is also the 7(m) micro-loan for funding needs up to $35,000 for working capital like inventory, furniture and supplies. These are delivered through micro-lenders such as WomenVenture, African Development Center (ADC).


  • Henry Ongeri

    Henry Ongeri is a Kenyan-American lawyer and Managing Partner of H.M. ONGERI & ASSOCIATES, a transatlantic law firm with offices in Africa and the United States. He is a regular commentator on global issues for Mshale.

About Henry Ongeri

Henry Ongeri is a Kenyan-American lawyer and Managing Partner of H.M. ONGERI & ASSOCIATES, a transatlantic law firm with offices in Africa and the United States. He is a regular commentator on global issues for Mshale.

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  1. What if TASKO has bad credit? If they accept credit cards, I might recommend business cash advance – this financing method can get them up to $250K in 24 hours. It is totally unsecured, because it’s not a loan – it is an advance on future credit card sales.

    For more info, or to comment on my blog, go to

  2. Debt versus Equity is an important topic for owners or officers of any company to review. However, I am tired of every article that talks about the SBA as being viable option for funding sources.

    No SBA lender that I am aware will ever lend one penny towards a technology or software start up that doesn’t already show significant cash flow. They are more likely to fund your restaurant or retail box than look at technology or service oriented companies. And forget it if you or any of the owners have bad credit.

    From now on, I believe all companies and writers ought to do more investigation and editorial on Private Placement Memoradums (PPM) or SCOR (Small Company Offering Registration) Offerings – also called a U-7 – because selling an equity stake in your firm is about the only real chance at getting the necessary seed capital you need to finance your operations from scratch.

    A great source of information on equity financing is located at site (look up SCOR – U-7) and go to the SEC, ,for information about PPMs, rule 504, 505 and 506.

    You can also go to your state’s Secretary of State website and look at what requirements and documentation you need in order to sell securities. California is great because they have all of their forms online and automated to reduce paperwork.

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