So, Your Startup or Small Business Needs Money: Here’s How to Find Funding in KCPorcshe Moran Murphy
“How do I get the money I need to start, maintain and grow my business?”
At some point, nearly every entrepreneur asks themselves that question. Although the topic of capital can often be scary, the Kansas City region is rich with resources to help founders get the money they need at every stage.
A great place to start is the KCSourceLink Kansas City Funding Guide, which is packed with helpful information on how and when to find loans, grants and equity funding.
To provide small business owners with an overview on accessing capital, Kansas City SCORE hosted a free webinar featuring Kelly Sievers, managing director of Women’s Capital Connection, and Brande Stitt, program director of the Women’s Business Center. Here are their top four tips for getting the money you need to launch and expand your business.
P.S. … SCORE Kansas City is also hosting an upcoming virtual event that covers funding in Kansas City from 9 a.m. – noon on June 22, 2022. Register here.
1. Determine the type of entrepreneur you want to be
There are many kinds of entrepreneurship, each with its own set of challenges, goals and needs. Knowing which category of entrepreneurship is the best fit for your business will help you determine what type of funding to seek.
Ensure you’re on the right track with a customized checklist of the things you need to do and the experts you need to meet to move your Kansas City business forward. Tell us what your business needs here, and we’ll craft your free Personal Action Plan.
“The majority of entrepreneurs in Kansas City are microenterprises, or entrepreneurs who are self-funded,” Kelly says. “They employ fewer than 10 people, they don’t require a lot of capital to launch, and, a lot of times, they don’t have a physical location.”
The second most common type of entrepreneurship is Main Street, followed by second-stage and innovation-led.
“Main Street businesses are generally small, independent and usually have a physical location, such as a local clothing store,” Kelly says. “Second-stage firms generate millions in revenue. Innovation-led companies are technology-based and often require equity capital and a lot more funding to grow quickly.”
Go beyond funding and explore the resources in Kansas City that relate to which type of entrepreneur or small business owner you are. Take a ride on the KCSourceLink Resource Rail and get a map for your business journey in KC.
2. Know your numbers
Entrepreneurs should stay on top of every detail related to the income and expenses of their business so they can keep track of performance and make informed decisions.
“You should always watch the numbers in your business,” Brande says. “Step No. 1 is to use a bookkeeping system, like QuickBooks, or some other online platform that will give you monthly reports. This will make it so much easier for you to understand how much money you need and will also help you populate the reports that a lender is going to need.”
Opening a business bank account is also key for founders to maintain the financial health of their company.
“Don’t co-mingle your personal and business funds,” Brande says. “That makes it really difficult for you to operate your business and also for external lenders to understand what money is coming in and what money is going out.”
Kelly advises entrepreneurs to be well-versed on how much money they need to run their business today and into the future.
“You’re going to need more money than what you can just get by with,” Kelly says. “It’s difficult to go back to the bank and ask for more money because you didn’t borrow enough the first time to take you as far as you want to go.”
Common types of funding for early-stage businesses are bootstrapping, selling products and services and crowdfunding. Want to know how to effectively sell your products and services? Explore our three-part guide on growth hacking, which has innovative strategies and ideas you can use to reach more customers.
More funding tips below …
3. Choose the right type of capital for your business
From credit cards to angel investors, business capital can come from a variety of sources.
The best place to start is with personal funds, such as cash/savings, bootstrapping (getting what you need without spending much on it), home equity, friends and family, credit cards, equity and stock portfolios and retirement accounts.
“It’s going to be difficult to receive external funding if you haven’t put your own skin in the game,” Brande says.
Once personal funds are exhausted, the next options for many entrepreneurs are grants or debt funding through traditional banks or microlenders. It’s a good idea to familiarize yourself with the types of loans available as well as Kansas City-area loan funds. Brande and Kelly often point entrepreneurs to organizations like Digital Sandbox KC (early-project funding for tech founders), AltCap (microloans) and the U.S. Small Business Administration (small business loans). Although the SBA doesn’t support businesses directly, the organization can refer you to programs it funds that can help you prepare for funding, like SCORE Kansas City, Small Business Development Centers in Missouri and Kansas, Women’s Business Center and VetBiz. The SBA’s Lender Match tool can help you find lenders that offer loans for your business. Brande and Kelly also recommend The Capital Access Center, part of the Kansas Small Business Development Center, for free business loan advice and capital acquisition consultation services.
Other Resource Partners in Kansas City that handle loans are Justine PETERSEN Microloan Program, Greater Kansas City LISC, Hispanic Economic Development Corporation, local economic development corporations and ecommunities in Leavenworth, Wyandotte and Paola counties provided by NetWork Kansas.
“Loans allow you to maintain ownership and control of your business without having to answer to shareholders,” Brande says. “Most debt funding programs are lower interest loans, typically 4 to 7 percent unless you’re using a credit card, so it’s generally considered the cheapest way to grow your business.”
A few KCSourceLink Resource Partner organizations offer grants, but these are often open to a limited segment of business owners and are often open for a limited time: Generating Income for Tomorrow (GIFT), Community Capital Fund, Grants.gov and the Wyandotte Small Business Grant. KCSouceLink can help guide you if you’re lost. Just call us at 816-235-6500, and we’ll draft your custom set of next steps, connect you to the experts in KC who can help and pinpoint which funding resources are right for you.
Innovative science- and tech based businesses should consider equity financing, which includes angel investors, venture capitalists and private equity. Kelly says entrepreneurs can apply to pitch their businesses to networks of accredited angel investors, such as Women’s Capital Connection and Mid-America Angels, which seek to invest in companies with proven products or services, big market opportunities and strong management teams that are open to being mentored and coached. Angel Capital Association, a professional society of accredited angel investors, provides tools and educational resources for entrepreneurs. Equity2 is a newer community-sourced equity fund.
Outside of money, investors can also provide valuable knowledge and introduce entrepreneurs to individuals that can help grow their business — whether it be customers, vendors or other sources of capital.
“The sources of funding that will make the most sense and be available to you will change as you go through the different stages of your business,” Brande says.
4. Develop a strategy for engaging potential funders
Before starting a business, it’s important to understand what lenders and investors look for and the information they’ll require to fund your startup. Establishing relationships with potential funders long before you need money will help make the application process smoother.
“A lot of times people are intimidated by banks and funding institutions,” Kelly says. “Remember, the only thing that banks have to sell is money, so they’re looking for good loans. Don’t be afraid to ask questions about what they’re looking for and what information they need. Otherwise, you might go to apply and then find out you’re missing something or they’re looking for something else.”
Perspective lenders will consider many factors, such as your capacity to repay a loan, the cash you put toward starting your business, your collateral, the market for your business and the purpose for the loan. Your character, including your educational background, business experience and personal credit history, will also be part of determining your loan eligibility. Brande says entrepreneurs should be ready to present personal and business documents, such as:
● personal and business tax returns (typically two years)
● personal and business bank statements (typically three months)
● authorization for credit reports for all borrowers
● list of uses of funds
● list of collateral pledged and estimated value
● business plan
● startups: three years of financial projections
● existing businesses: balance sheet, income statement and cash flow statement with projections
“Lenders don’t like chasing documents down, and it really doesn’t speak well to your commitment to the process of securing a loan from them,” Brande says. “It’s always best to have everything pulled together to put your best foot forward with a lender. They’ll be appreciative of all the work that you’ve done up front to make their job as your advocate to the underwriting committee easier.”
In addition to bolstering your capital request, building and maintaining relationships with funding institutions can help increase your awareness of any other available resources for entrepreneurs.
“Most banks have other services they provide to small businesses outside of just a loan,” Brande says. “There could be a line of credit that would make sense for your business or merchant services that are available to you through your bank, so having that relationship with a loan officer or with a small business banker will help you to know all the opportunities available to you and how to take advantage of them.”