Once your business plan is complete, you should have a clear understanding of how much money you need to start and run your business effectively. If you need to raise or borrow money there are several options.

Borrowing Money

Borrowing money, which is also referred to as debt financing requires repayment of the loan over a period of time, typically with interest. You may choose to work with traditional or nontraditional lenders to finance your business (or a combination of both). Most traditional lenders are banks, which have strict rules about who can and cannot obtain a loan based on a number of criteria. Non-traditional lenders include nonprofit and community lenders, as well as City loan programs that offer lower interest rates to many businesses.

City Loan Programs

The Business Incentive and Assistance Program and the Downtown Rutland Partnership (DRP) are lending programs that provide low-interest loans to small businesses for various purposes. Both funds are managed by local nonprofits that provide financing in addition to training and other resources. The DRP program is reserved for businesses located in the Downtown Rutland Special Benefits District. For more information, see Loan Programs.

Nonprofit & Community Lenders

Typically, loans from nonprofit and community lenders come with fewer restrictions than loans from traditional banks. These lenders frequently focus on disadvantaged groups who are less likely to receive loans from regular banks like minority or low-income business founders. Their loans are usually smaller or have fixed interest rates so that borrowers are less likely to default and fail to repay the loan. Besides financing, many of these lenders provide services like training or technical assistance.

Banks

Loans issued by banks are one of the most traditional and conservative methods of financing a business. However, these are also some of the hardest loans to obtain. When lending to new businesses, banks usually only offer short-term loans, seasonal lines of credit, and single-purpose loans for machinery and equipment. To apply for a loan, most banks also require a business plan with the application.

Raising Money

Raising money to finance your business involves finding investors who are interested in contributing funding now for a future return on their capital. Investors can provide loans that will pay their interest or direct contributions for a given percentage of business ownership.

Investors

Potential investors include a wide array of individuals. They might be people you know personally as friends, relatives, or colleagues. They could be also be venture capitalists, who are investors that specialize in early-stage startup companies with high risk but high potential.

Friends and Family

It's important to agree in writing on the terms of the loan even when borrowing from friends and family. Not only does this help you and your investors agree how the money will be repaid, it also affects whether or not the IRS taxes the money you received from them. For example, if the borrowed money is not repaid, the IRS may characterize the loan as a gift and apply a gift tax.

Venture Capital

Venture capital may be obtained come from high net worth individuals (sometimes called angel investors) or venture capital firms that have rules about how they invest. These types of investors will contribute to decisions about how to operate the company and frequently mentor the founders of the business.

Crowdfunding

Crowdfunding is a way of funding a project or business by raising small amounts of money from a large audience. A crowdfunding campaign will have a set amount of money to raise as they goal within a fixed amount of time. By creating and sharing a crowdfunding campaign, you can raise awareness about your business while also funding it. There are several websites that allow you to create and share a crowdfunding campaign and they can be found via a quick online search. When selecting the right crowdfunding platform for your campaign, pay special attention to fees and campaign rules to make that it is the right fit for your needs.