Funding Options Available for Small Businesses
In Northwest Arkansas
Intro to Small Business Funding
In this article, we will cover need-to-knows about funding a business, with sections covering start-up costs, operation costs, lending sources, and key terms when thinking about business funding. We provide this information as a resource for small businesses trying to figure out the small business funding puzzle. Business funding can come from a combination of sources, including friends or family, loans, grants, and crowdfunding. In this article, we will review funding statistics, key terms, loan resources, grant resources, and crowdfunding sources.
DISCLAIMER: Comprehensive Consulting Solutions for Small Businesses is not a loan officer or lender. This blog and other related materials are based on client experiences, personal experience, loan officer interviews, and other sources and are provided for informational purposes. Any references to specific companies, terms, options, and related are not endorsements, recommendations, or guarantees but are provided as resources to help with your funding journey.
Stats to Know about Small Business Funding
When operating a small business, having access to the statistics of small business lending can be invaluable. Observing the habits and trends of small business lending can help small business owners understand how lenders and other business owners approach their financial management.
Here are some small business lending statistics and trends according to Fundera:
"43% of small businesses applied for a loan in 2022.
9% of small businesses received no capital after applying for a loan.
14% of small businesses only received a portion of their requested funds after applying for a loan.
The average SBA loan amount is $107,000.
$27.5 billion in SBA loans were provided to small businesses in 2023.
32% of small business applicants turned to online lenders in 2023.
70% of small businesses have outstanding debt.
29% of small businesses fail because they run out of capital.
Only 48% of small businesses overall have their financing needs met.
56% of small businesses apply for funding to expand their business, pursue a new opportunity, or acquire business assets.
36% of small businesses that were denied at least some of the funding they requested were denied because of their credit score.
57% of small business loan applicants sought $100,000 or less.
At 66%, the approval rate is highest for institutional lenders than for any other type of lending entity.
Biz2Credit’s Small Business Lending Indexes have found that institutional lenders—like pension funds and insurance companies, for instance—consistently have the highest small business lending approval rates. Other small business lending entities aren’t far behind, though:
Alternative lenders have a 56.8% approval rate.
Small banks have a 50.1% approval rate.
Credit unions have a 39.9% approval rate.
Big banks have a 27.7% approval rate.
At 85%, the approval rate for merchant cash advances is the highest of all types of small business funding. Merchant cash advances offer the highest approval rates of all forms of small business debt financing. 85% of small businesses that apply for a merchant cash advance get approved. However, you might be surprised at how the remaining forms of small business loans compare:
Auto and equipment loans have an 80% approval rate.
Business lines of credit have a 73% approval rate.
Home equity lines of credit have a 70% approval rate.
Mortgages have a 69% approval rate.
Traditional business loans have a 67% approval rate.
Personal loans have a 55% approval rate.
SBA loans or lines of credit have a 52% approval rate."
Start-Up Costs
Some businesses apply for business loans to help cover start-up costs and others use savings or borrow money from friends or family. Startup costs are the expenses associated with starting a business. To help determine how much capital is needed to start a business, create a start up cost list. Start-up costs include all costs or expenses to start your business including operational costs, marketing, and pay needed for the business owner to cash flow while building customers and sales.
Begin by estimating expenses. What will it cost you to get your business up and running? Create a list of everything you will need to purchase to make and distribute your product or service. This will include both tangible assets (for example, equipment and inventory) and intangible assets (for example, services such as remodeling and insurance). Then, determine where you might purchase these goods or services. Research more than one vendor: i.e., comparison shop. Do not look at price alone; terms of payment, delivery, reliability, and service are also important.
Here are start-up cost templates from Microsoft. And we also included an example list below.
Contingencies
Add a reserve for contingencies or possible unexpected items. Make sure to explain in your narrative how you decide on the amount you are putting into this reserve. This bucket of funds can cover unexpected expenses that you could not have planned for.
Working Capital
You cannot start a business with an empty bank account. You need a cash cushion (cash flow) to cover expenses while the business gets up and running. You should have a 12-month cash flow projection. This is where you will work out your estimate of working capital needs. This includes what income is coming in (revenue, accounts receivable) and timing + amounts of expenses and their timing (accounts payable). A cash flow helps you predict when cash may be tight. For example, if you have a client that pays upon receipt - you will have created a product and inventory to complete the order - so you have cash tied up in the sale. Payment is made 15 days later - but normal expenses and payroll are occurring as normal - this can cause a kink in the cash flow. Which is why projected out expenses and income is a very important tool to make sure the business has cash flow and to make a plan for expected changes in cash flow. Just because you sold it - doesn’t mean the income is in your account just yet - so make sure you prepare for the potential ups and downs of running a small business and cash flow needs.
Here is an example of a cash flow statement and a sample cash flow projection template for a small business, created in Microsoft Office. You can also review in other programs, such as QuickBooks.
Operational Costs
Operation costs are expenses associated with day-to-day, monthly, or annual business operations, such as utilities, lease or loan costs, payroll, insurance, phone, internet, and taxes. Add up the total expenses that need to be paid monthly, as well as the annual sum of each, which will amount to your total operating costs for running your business.
Here is an example of a chart meant to add the total amount of operating costs for a business in Arkansas.
Financial Statements
Financial statements are written records meant to convey a business’ performance and activities. Financial statements, which include a balance sheet, income statement, and cash flow statement, can be audited by government agencies, accountants, and independent firms. Investors and financial analysts also use financial statements to analyze the performance of a company and make predictions about the company’s future.
Here is an example of an income statement or profit and loss statement from Microsoft. For new businesses, we suggest creating a 12-month cash flow projection and 12 12-month profit & loss projection as a minimum. If possible, also create 24-month projections and update those annually.
Terms and Definitions
When thinking about small business funding, there are some terms and definitions you will need to familiarize yourself with. We will cover a few of those terms here.
Bookkeeping- Recording business transactions in a regular and systematic manner.
Business Line of Credit- An arrangement between a bank and a customer, establishing a preset borrowing limit that can be drawn on repeatedly.
Business Plan - A detailed plan written in document form describing how a new business plans to achieve its goals.
Cash Flow - The net amount of cash and cash equivalents that are being transferred in and out of a business.
Credit Score - A number ranging between 300-850 depicting creditworthiness. Businesses have a separate credit score – we suggest creating a profile on Dun and Bradstreet.
Collateral - An asset owned by the borrower that a lender accepts as security for extending a loan. Collateral can be seized if the borrower defaults.
Crowdfunding - The use of small/large amounts of capital issued by a large number of people in order to raise money or fund a business.
Equipment Financing - The use of a loan or lease in order to borrow against assets for your business.
Grant - An award given by the federal, state, or local government to fund some type of beneficial project.
Invoice Financing - Borrowing money against billed invoices.
Merchant Cash Advances - A short-term financing option that a business can receive in a lump sum and pay back incrementally.
SBA Loans - A loan from a lending institution, where the SBA could guarantee as much as 80% of the loan principal.
Short-Term Loan - A loan that is issued to assist with temporary needs.
Tax Returns - A form filed with a tax authority stating the taxpayer's gross income, deductions, and profit from business operations.
Term Loan - A loan from a lending institution for a specific amount that has a specified repayment schedule with a fixed or floating interest rate.
Funding Sources | Loans
When searching for funding for your business, there are many options to look at and choose from. This section will focus on loans and their sources as ways to find funding. If you are looking for a complete guide to how loans work, we recommend checking out this funding guide from Fundera.
Types of Loans:
Informal - Friends and Family
Commercial Property
Construction
Crowdfunding
Equipment
Farm and Agriculture
Invoice Financing
Line of Credit
Merchant Cash Advances
SBA Loan
Short-Term Loan
Term Loan
Collateral Examples
A/R
Business Assets
Business CD
Cars
Equipment
Insurance Policies
Inventory
Investment Accounts
Property
Potential Loan Sources in Northwest Arkansas
Forge - FORGE is a CDFI, or community development financial institution, that provides capital and business development services designed to help individuals start and grow successful small businesses to build communities through collaborations with other non-profits, higher education institutions, corporations, and public agencies and to create scalable program models with measurable impact that can be replicated in communities across Arkansas and the Ozarks.
Communities Unlimited in Fayetteville- “is a U.S. Treasury-certified Community Development Financial Institution (CDFI). We expand economic opportunities for underserved people and communities by providing access to the capital they need to prosper. We offer a variety of lending opportunities for small businesses, water/wastewater needs, and housing.”
Local Banks and SBA Lenders- Can underwrite loans, and SBA-appointed banks can also write SBA loans. Check with your local bank. Understanding that some banks and SBA loans have more stringent underwriting
QuickBooks – if you run your books through QuickBooks and reach a certain revenue threshold, QuickBooks usually notifies you when you may be eligible for a loan
OnDeck – Online lender – can finance loans based on cash flow in your business’s bank accounts.
Online Sources - Here are a couple of sources that list online funding options, but there are more available through an online search.
- Fundera
- Nerd Wallet
Loan Application Process
The complete loan process varies depending on the lender and loan type, but here is a general format to help you know what to expect.
To start, the lender will request information and permission to run your credit and business credit to see what terms they may be able to offer you (usually a soft hit – they will run hard credit after they have more info). You will then input any remaining business information (EIN, contact info, articles of organization, and so on), personal information (depending on business structure and business credit – name, address, social, birthdate, and income), copy of your driver’s license (and other identification as required such as a passport, social security card, or birth certificate), and proof of income (or assets, depending on the loan type). You can use tax returns and even connect your bank account to a lender to see what you qualify for. The lender may also request a business plan and financial statements.
Once that is completed, the lender will offer or not offer a loan to you based on the information they collected during underwriting. Rejection happens, so don’t beat yourself up if it doesn’t work as planned. Keep trying, and also look at community lenders, microlending, and grants in the meantime.
Grants
What is a Grant?
A grant is an amount of money that a government or other institution gives to an individual or to an organization for a particular purpose.
Grants or Articles about Grants with lists of National Vendors:
eCivis Grants Network- This is a subscription-based service with profiles for public and private sector funders.
Candid- Previously known as The Foundation Center. This subscription-based service for private-sector funders offers several newsletters, including Philanthropy News Digest.
Grants.gov- Here, you can find government agency funding announcements for free.
Grants for Veterans | VOSB
Grant Association in Arkansas
The Grant Professionals Association is a great resource for connecting with grant pros in Northwest Arkansas.
Example Questions to Ask a Grant Writer
How many years of experience does she/he have in writing grants?
How many grants has she/he written proposals for?
Does she/he have experience with writing grants for a non-profit like yours?
What is the grant process?
How long does writing a grant take and how long does it take to hear back in her/his experience?
How much are her/his grant writing services? What do they include? Any contingencies if the grant is not received?
How many grants has she/he helped non-profits receive?
What percentage of grants are approved (award rate or success rate) in her/his experience?
Does she/he know of any websites or grants that you should check out?
Crowdfunding
What is Crowdfunding?
Crowdfunding is the use of money issued by a large sum of people in efforts to raise money or fund a business.
Crowdfunding is usually done on various platforms specifically designed for various crowdfunding projects.
List of Crowdfunding Platforms
For more information on where to get funds for your small business, check out these articles below:
Next Steps:
➔ Review your funding needs and complete your business plan and prototype, while looking for the right funding options for you and your business.
➔ Gather documentation needed and apply.
➔ For more information on your application, speak to your respective business lender or banker, grant organization, or crowdsourcing platform.
CCS Small Business Funding Workshop 2024
In October 2024, Mollie Watkins of CCS visited the Fayetteville Public Library to present at a Small Business Funding Workshop. In this workshop, she covered the topics mentioned above and more for prospective and current business owners. Check out this article going over the details of the workshop for more information!
Comprehensive Consulting Solutions is a business advisor and consultant in Fayetteville, Northwest Arkansas. We help clients with business planning, marketing, recruiting, and more. If you’re interested in learning more about how a consultant can help your business, feel free to contact Comprehensive Consulting Solutions for Small Businesses at (479) 935-2488 for a free consultation.
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