Q: Steve: Where do people find the money to start (or grow) a business? I don’t have great credit, so that is one strike already. Are there grants available? What do other entrepreneurs do?

Jackie

A: Your question reminds me of the story of the two out-of-work journalists who loved to play Scrabble. One night, as they got ready to play, they realized that a few of their letter tiles were missing so they headed off to the store to buy another set of the game. That was then they realized two things:

1. That between them they had probably bought six games of Scrabble in their lives, and
2. That creating a board game might be a lucrative business.

They had an idea for a game immediately, but no money, no experience, and no credit. But based on a smart business plan, a lot of gumption, and heaps of enthusiasm, they convinced 70 of their friends, associates, business colleagues and so on, to invest $1,000 each, raising $70,000 in the process.

The name of their game and business? Trivial Pursuit.

If two unemployed journalists with neither business nor gaming experience could find the money, so can you. Here are some of your best choices:

1. The friends and family plan: This is by far the most common way people finance business startups and expansions. The good news about going to a friend or family member is that you will likely get very favorable rates and a reasonable repayment schedule. The bad news is that you will owe money to someone with whom you have a close, personal relationship, and that changes things. If you are unable to pay him or her back on time, that really changes things.

2. SBA loans: Small Business Administration loans administered either through banks or other lending institutions are another popular source of small business funding. SBA loans typically are easier to qualify for than other sorts of loans, so that makes them especially attractive to entrepreneurs.

There are all sorts of SBA loans. Microloans, for instance, are available only up to $35,000 – perfect for a small startup. 7(a) loans go up to $2 million – perfect for a growth-stage company.

3. Personal equity: Not a few entrepreneurs tap their home equity, IRAs, 401(k) plans, or stock portfolio in order to start their business, so compelling is the dream.

While I have no objection to this per se, my word of caution is the same across the board: MAKE SURE you have a realistic repayment plan before you borrow or otherwise secure the money.

Crunch the numbers, and then let the numbers do the talking. Can you afford to buy that franchise? What do the numbers say? Can you afford that media buy? Crunch the numbers. If the numbers pencil out, then by all means go get the money, but if they don’t, then don’t.

4. Partners and investors: Another way to get the money is to find a partner who has it and who is willing to invest in you and your business. This could either be an active or passive partner.

An active partner will likely be someone who likes you and your business and wants to be part of it on a day-to-day basis. In this scenario, I suggest that you test the partnership first by working on some projects together to see if you are compatible.

A passive partner is, essentially, an angel investor. This is an individual of means willing to invest in your business for a piece of the pie.

5. Suppliers and distributors: An often untapped source of funding are your own suppliers, wholesales, and distributors. These are large businesses that want your business and may be willing to lend you some money or inventory, provided they believe in your vision and plan.

Every small business you see when you drive down the road is someone’s dream. If they found the money, so can you.

Today’s tip: Of course, one last option is to use your credit cards; many entrepreneurs have. Although doing so can be expensive, it can work, but again, ONLY IF you have a viable plan to pay them off quickly, and you do.