Starting a business can be exciting but overwhelming. Before you bring your product to market, you’ll need to consider things like potential staffing, marketing, and perhaps most importantly, figuring out how to finance a business.

Each business owner needs to determine what path is best based on their personal financial situation, ability to repay creditors, overall risk appetite, and whether to share ownership.

There are various ways to go about financing a business, and some financing options can even be combined, depending on your situation. Examples of how to finance a business include, but are not limited to:

  • Equity financing – This can include prospective owners using their savings account to invest in their business idea. Other variations of equity financing can include angel or private equity investors; those who invest capital in businesses in exchange for an ownership stake.
  • Debt financing – Most often, this includes traditional business loans from your financial institution or loans from friends and families.
  • Small business grants – These types of grants provide money for startups and businesses hoping to expand. In some cases, applying for these grants require a lot of time and effort. Various grants are specialized and offered for businesses in a specific industry, come from federal, state or regional government agencies, or given by corporations, among other sources.

“No matter the route you eventually choose, the essential first step in determining how much funding is needed and where it comes from is building a business plan,” said Tony Pich, Business Lending Product Manager for PNC.

The business plan, Pich said, allows entrepreneurs to answer basic questions about the viability of their idea and determine what kind of financial steps need to be taken to make that vision a reality. This includes financial forecasting, which can detail what you will spend and make in the first two to three years of operations, as well as what it will cost to launch and sustain your business.

How Can a Bank Finance a Business?

“A lot of entrepreneurs think that if they can just get the money to open the doors that they are set, but that’s simply not true,” Pich said. “If you don’t figure out how to also keep the lights on until you have consistent cash flow, you’re likely to run into some challenges that could have dire consequences.”

Once entrepreneurs develop a baseline understanding of what it will cost to launch their business, they can search for funding sources. If personal funds are insufficient or private investors are unavailable, bank lending is an option to pursue. Pich said that for many small business owners, a term loan backed by the SBA is an attractive solution. Such loans are offered by lenders like PNC, and are available in varying amounts, with flexible terms and lower down payment requirements than a conventional loan. SBA-backed loans are also flexible in terms of how they can be used. Entrepreneurs can use them for expenses including real estate, inventory, franchising, and equipment, among other things.

Specialized financing is often available for entrepreneurs in the medical, dentistry, veterinary and other healthcare related fields. To help determine the best financial tool to fund a business, entrepreneurs can talk to a business banking professional on the phone or in a PNC branch.

Building an Advisor Network

In addition to finding the right financial instrument to fund a business, it’s important to also surround yourself with advisors who can help build a financial forecast and account for often overlooked aspects associated with opening a business. An advisor can help talk through things like:

  • Operational costs – Expenses such as shipping and receiving, inventory acquisition and goods storage.
  • Lifestyle considerations – How much money an entrepreneur can devote to their business and what they may need to make to maintain a preferred lifestyle.
  • Experience – Does an entrepreneur have the requisite experience to make their business viable?

“You can check off every box,” Pich said. “However, based on my experience, without trusted advisors to help you get off the ground, the odds of getting to a point of stabilization where your business is viable for two years or more is, unfortunately, very low.”

For more information on small business loans, other financing options, and related solutions, view the PNC Financing and Lending Options for Small Businesses page.