With unemployment at its lowest point since 2008 and modest gains projected for 2015, it’s clear that the U.S. economy has picked up momentum. Much of that momentum has to do with the growth of startup companies. According to the U.S. Small Business Administration, 49 percent of private sector employment was attributed to small businesses in 2012. Not only are people starting businesses, small businesses are also able to grow into larger organizations.
If you are considering running your own business, you know that having access to capital is critical to success. There are numerous types of funding available in Kentucky, including loans, venture capitalist investment, tax credits and more. This guide to small business funding can help you jump-start your business and make your plans a reality.
The first step for many entrepreneurs is to apply for a business loan. Banks have specific guidelines for evaluating business loan applications. In addition, they often prefer certain types of loans and business sectors, depending on your specific region and community. The Kentucky Small Business Development Center (KSBDC) lists several elements banks take into consideration before approving a loan:
- Credit history and score
- Use of funds
- Working capital
- Servicing the debt
It is important to remember that 100 percent financing is not an option, meaning that you will also need to make a personal contribution. Before the bank approves your loan application, it will expect a presentation that illustrates your knowledge of the competition, the marketplace, sales potential and more. This should include your business plan as well as “cash-flow statements for at least twelve months, balance sheets, and three years pro-formas (projected profit-and-loss statements),” the KSBDC recommends.
Another option for entrepreneurs is to apply for a grant. Grants fall into two categories: public and private. They are usually targeted at highly technical areas of industry, schools and training programs, and other governmental agencies. They are created to address social problems and, for this reason, have strict eligibility requirements. It is important to be aware of any technicalities in grant criteria before beginning the application process.
Angel investors and venture capitalists invest money in small businesses because they are interested in high rates of return over a short period of time, often less than five years. These individuals sometimes require part ownership, a place on the board of directors or management positions. Though it was difficult for new businesses to receive venture capital funds in the past, “early-stage” seed funds have become widely available in recent years. These sources of funding are focused on bringing innovative ideas and new technologies into the marketplace, as the tech industry continues to grow.
The state of Kentucky offers a wide variety of resources and incentives for business. In particular, the Kentucky Economic Development Finance Authority (KEDFA) was formed in order to “encourage economic development, business expansion, and job creation, [as well as provide] financial support through an array of financial assistance and tax credit programs.” The following are some of the resources available for small business funding.
- Kentucky Small Business Credit Initiative: Increases credit availability by reducing the risks to lenders. It helps lenders finance small businesses that “would typically fall just outside of their normal lending guidelines,” according to the KEDFA website.
- Small Business Loan Program: Assists small businesses in acquiring land, buildings, equipment and working capital. It offers loans from $15,000 to $100,000 and can fund up to 100 percent of project costs.
- The Kentucky Small Business Tax Credit: Provides nonrefundable tax credits to businesses that hire one or more eligible individuals and invest at least $5,000 in equipment or technology. With a few exceptions, the KEDFA reports that most for-profit small businesses with 50 or fewer full-time employees are eligible for this program.
- U.S. Small Business Administration, Kentucky division: Provides both “guaranteed loans” and other forms of financial assistance for small businesses.
- Kentucky Angel Investment Tax Credit: Offers tax credits for up to a 50 percent investment in small businesses. To be eligible, both the investor and business owner must submit applications for certification.
- VenCap Kentucky: Increases business access to seed, early-stage and expansion capital. It provides funding to entrepreneurs who have found a lead investor for their business. To qualify, companies must be located in Kentucky and have fewer than 500 employees.
Business Education at BUonline
All of these Kentucky resources are great options for those looking for sources of business funding. And no matter where you are in your business career, BUonline has the degree program you’re looking for. With business and business-related degrees at the associate, bachelor’s and master’s level, you can get the education you need to meet your personal and professional goals. The Kentucky business community is as connected and thriving as ever, and you can become a part of it with a business degree from BUonline.