Along with self-funding, venture capital and angel investors, there are a number of government and bank options for obtaining seed capital. Banks have been funding new business ventures for centuries, and along with small business loans, grants, and microloans, government business agencies are high-value sources of free information on topics that you need to know about as a founder.
The Small Business Administration: knowledge and funding
The SBA is an Eisenhower-Era federal government agency that provides information on business-related legal and regulatory issues, along with online resources and counseling services that cover the nuts-and-bolts of starting and structuring a business. This includes training on how to read contracts, how to obtain capital, how to write a business plan, knowledge of federal laws that govern advertising and marketing, as well as training on relevant federal regulations and tax codes.
The SBA maintains several hundred Small Business Development Centers around the country, often located on college campuses.
State agencies are also important sources of information on legalities like Blue Sky laws that cover capital investments and equity. These agencies also frequently provide information on state contract laws as well as the laws that govern LLCs, partnerships, and corporations with regards to taxes and the legalities of company structures and liability. First time founders should definitely avail themselves of the business and legal information resources made available through the office of the secretary of state in their state.
At the local level, municipalities and even neighborhood associations offer a variety of small loans, micro financing, and grants to new businesses within their jurisdictions. Frequently these are from the Small Business Administration’s microloan program, in which small loans are administered by these organizations to promote local economic development. These are typically loans in the range of $3,000 to $4,000 and are a good source of funding for individuals with less than stellar credit or significant loan collateral who plan to run a business within that intermediary’s jurisdiction.
While not typically viewed as a seed fund source in the software development community the SBA does provide some loans specifically for capitalizing small, recently started companies. The SBA’s 7a Loan Program may be available to founders who live and work in rural areas, who are minorities, women, or military veterans, or whose startup is targeted at markets outside of the United States. Anything having to do with promoting exports has been of particular interest to the SBA in recent years.
Additionally the SBA serves as the federal government’s primary lead for delivering government contracts to small businesses, and the agency has been a major active lender to new small businesses since the 2008 credit collapse.
Small business bank loans: A traditional method for small business funding
Credit may have grown significantly tighter since the 2008 implosion of the credit markets, but banks by in large are still in the business of lending to entrepreneurs and small startups. Being financial institutions, they will be keenly interested in the prospective finances of your startup when you approach them for a loan.
That means having a detailed business plan or proposal written up and in action before applying for a business loan. Not only will a bank want to know about the software you’re producing and its potential niche in the apps market, but just as importantly its loan officers will want to see your financial forecasts. When do you foresee your company hitting the breakeven point when you costs and rising revenue streams are equal? One year, two, or three? What sort of revenue levels are your forecasting and what’s your supporting data or assumptions behind those predictions.
Revenue forecasts are an important consideration for banks from the standpoint of not only recouping the money they loan you, but enough interest to have made an investment worth their while. At the very least a bank’s lending officers will want to know if you have sufficient cash flow to make loan repayments. They’ll also want to know if you and your fellow founders have sufficient financial reserves or assets to serve as collateral. They’ll most definitely be taking a look at your credit history.
A bank will also want some sign that you and any partners are competent to run a startup. Your business plan should include a summary of any past entrepreneurial or startup experience. Two ways to shore up shortcomings in the area are to either bring an individual or team with startup experience onboard, or to approach the bank with other investors already committed to the project.
An interested bank can be an excellent means of filling that first round of seed funding needed to get your development business off the ground.blog comments powered by Disqus