Rather than seek outside funding to get started, Shawn Anderson grew his kettle corn business from his yard and on the road before buying an existing business in Webster City, Iowa. Photos via Deb Brown.

If you need outside funding to get to the next step in your rural small business, your next step is too big.

Before you bet big on your business idea, test it with small steps. Make some sales from your front yard, then try a booth, then a trailer, then think about moving up to a small building.

Before you borrow money to buy a new piece of equipment, find a smaller step you can take. Borrow or rent equipment temporarily. Share equipment with another business, splitting the cost. Subcontract out that part of production to another business. Redesign your product or process so you don’t need that equipment after all.

Before you go into debt to fix up an older building, think smaller. Find a tiny space to occupy first. Share space with an existing business. Go mobile. Open smaller in a few towns rather than bet everything on a single location.

Go Small or Go Home

This is some hard-won rural wisdom. Better to stay small than go into big debt. Expect that you’ll face some zero income times. Don’t take on more responsibilities than you can cover. Be ready for banks to be bought out, loan portfolios to be sold and resold to unsympathetic lenders. These are part of the Small Town Rules: Be Small to Grow Big, and Plan for Zero.

Have you taken small steps?

If you have a story about taking small steps to stay independent, I’d love to hear about it.

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Photo (CC 2.0) by GotCredit, on Flickr

One of the most common requests I get is to help people access “free money” to help them start their business.

Regretfully, my response is there is little, if any, free money available. Instead business owners need to depend on their own personal funds, family and friends, or good bootstrapping.

At some point though, most small businesses need to access additional funds and that will usually come in the form of a loan.

While the reason for the loan may vary, from needing more raw materials to buying additional equipment to buying inventory to hiring more people to a cash flow issue, the early sources of business financing, bootstrapping or personal savings, just cannot cover the need.

So the next step typically is to get a small-business loan.

People are often concerned about their ability to get a loan. It really is not very different from getting a personal loan. The bank wants to know your credit history, what you have for collateral and your ability to repay the loan.

And when your business is new, the banker will want not only this information about the business but also from you, the owner.

There are several common mistakes small-business owners may make when applying for a loan:

• Having an incomplete or inaccurate application
• Not providing information in a timely manner
• Lack of a clear explanation of how much money they need and how the funds will be used
• Withholding personal guarantees (this is especially true for startups and smaller businesses)
• Not knowing their personal and business credit rating
• Not showing efforts to improve their credit ratings
• Not having a solid business plan with reasonable projections

Bankers understand that businesses often operate in cycles, with ups and downs. They also know the difficult in starting a business. So make your projections as accurate as possible and don’t hide any information. What the bankers want is realism and a clear path for building the business.

It is also important that the business owner do his or her homework in finding a bank for your loan. Find a bank and banker who understand small-business finance. Like finding other professionals such as your certified public accountant and attorney, it is important to research the bank you hope to use.

Finally, once you get your loan, stay in regular contact with your banker. He or she can provide reliable guidance and possible solutions to challenges that occur. They don’t like surprises. They are willing to work with you as you need to make adjustments.

Business loans are crucial in your growth. Learn early they work and on, what you hope to be a long-term relationship, with your banker.