Sources of Finance for a Partnership (2024)

Securing finances for a start-up or for expanding an existing operation is a challenge for any business. The sources for partnership finance are not really different from financing sources for any other type of business venture, whether a sole proprietorship, partnership or a full-fledged corporation. Look to your partners or shareholders, other people you know and traditional and non-traditional sources of capital in a partnership for funding your enterprise.

Determine Your Needs and Make a Plan

Before looking for sources of investment in a partnership, you and your partners should carefully determine your needs. Develop a business plan to clarify the steps you will take to start or expand your partnership, the activities involved in each step and the funding you will need to make each step happen. The business plan will not only help you determine your funding needs, but will serve as an important tool for communicating to potential funders. A well-designed business plan demonstrates your competence, generates enthusiasm, and provides potential funders the details needed to make an informed financial decision.

Bootstrapping Your Partnership

A common source of funding for a new or expanding partnership is the pockets, deep or otherwise, of the partners themselves. Known as self-funding or bootstrapping, consider how much of your own financial resources you can put in toward your business, and ask your partners to do the same. Sources can include savings, stocks and bonds, and even retirement account funds. Bear in mind, though, that you are putting your personal finances at risk, so it's necessary to find a level of risk tolerance that works for you and your partners.

You can also cast a wider net by seeking funds from your personal circle of family, friends and acquaintances. There may be some people who are willing to provide no-strings-attached funding; it's not uncommon for parents to put some cash into the business of a child without expectation of any return. Others, of course, will expect some sort of return, either as a conventional loan or perhaps in future services from your business.

Explore Venture Capital Funding

You and your partners can take your business plan to venture capital (VC) investors who are on the lookout for high-growth business opportunities. Venture capitalists often have deep pockets, deep enough to fully fund your partnership business. However, VC funders typically want to be very involved in business planning and decision-making, so that funding might mean surrendering full control of your partnership.

Secure a Business Loan

Partnerships and other businesses conventionally turn to banks for a loan to fund their operations. Your business plan, along with projections of your business income for the next few years, are essential to communicate to the bank that you are a risk worth lending to. The bank will also look to the credentials and experience of the partners in making its lending decision.

Consider Crowdfunding Your Business

Newer models of financing your partnership include turning to the internet for crowdfunding opportunities. Crowdfunding works by securing multiple small investments to your business rather than one or two large investments. For example, a crowdfunding campaign might result in a thousand people providing $100 each to your partnership, for total funding of $100,000, subtracting any fees charged for the service.

There are various models of crowdfunding, ranging from sending investors a future product to providing a future return on investment. Make sure you are clear on the process and expectations of any crowdfunding service you choose to use.

Small Business Grants

In rare cases, a business venture may be able to secure a grant for a new undertaking. For example, the federal government's Small Business Innovation Research program offers research grants for sole proprietors, partnerships and other small businesses. SBIR sets a theme each funding cycle, such as new recycling technology development, and provides grants to business working in priority areas. Other grant programs sometimes provide funds for very specific activities, such as alternative energy sources or innovative farming practices. Your due diligence research will help identify grant possibilities for your partnership business.

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