Financing Your Business

Finding the capital you need to finance your business canbe a confusing and complicated process. Many great ideasstumble at this stage of business building.Yet, moving through this stage breathes life into yourbusiness – giving it forward momentum like a roller coasterbarreling down the first big hill. Finding money is just amatter of being informed and choosing the right path formoney to enter the business.There are several options available to you when searchingfor financing. Some methods of raising funds are lessdifficult than others, but all require some planning. Basicplanning requires that you know the answer to these threequestions: 1. What will you use the money for?You must know exactly where the money will be used. Youmust be specific, as generalities are recipes for disaster.Carefully identify the areas where money should flow intoyour business. 2. How much money do you need? You should calculate your needs to carry you throughinitial startup and into your first several months ofoperation. It’s necessary to have a realistic picture ofyour needs. Many businesses fail because the money runs out before the business reaches profitability. 3. How will you pay back the money? You must have adequate cash flow from your business torepay the money to your source. Before asking for funds, make sure your fiscal projections and business integrity are soundly argued in a good business plan. An integral part of a good business plan are financialstatements for your business. You need to show sufficientcash flow in your business for repayment. You do this withinformation as found in an income statement, a balance sheet, and a projected cash flow statement.SOURCES OF MONEYHere are some options for funding your small business:==> Credit CardsOne form of personal debt you should avoid is cashadvances on your credit card. It’s very tempting and veryeasy to get cash this way. If you do this you should pray.Pray with vigor. Then ask for forgiveness. This option isvery expensive and extremely risky. Credit cards shouldonly be used for short-term expenses, and not as a means to entirely fund a start-up business.==> Friends and FamilyBorrowing from your friends and family, especially therich ones, is a good way for new businesses to get money.It’s not uncommon for relatives to make low interest or nointerest loans to family members. Just make sure allparties are aware of any risks. You don’t want to alienateyour family if the business falls on hard times and youhave trouble repaying the loan. ==> Personal SavingsYou can use your personal savings or assets that can beconverted to cash. If your savings are already low, put offthat vacation, drive your old car a bit longer, avoid largepurchases — be thrifty in all areas and you can savefaster for your business. Keep in mind that most lenderswon’t finance 100 percent of your business, so you’ll needto invest some money yourself. ==> Line of CreditIf you have good credit, you may be able secure a line ofcredit from your bank. This can be handy in providing youwith a source of working capital in the opening round ofyour business. ==> Bank LoanUsing collateral, such as the equity in your home, you canapproach your bank for a loan against your business. Thismay or may not be an option for you, since some banksprefer to separate personal equity from business debt. ==> Venture CapitalPeople with lots of money love to make lots more money.Your job is to convince venture capital providers that youand your business can help them make lots more money. You must be able to show you’ve got a real winner. Youmust do it without fluff or a “come on, dream with me”embellishment. Therefore, you need a business plan. A good one that shows you’ve done your homework and know the “lay of the land.”Venture capital providers want to be sure their investmentis sound. They generally do this by taking ownership over apretty big part of the company, and often require controlof major portions of the business. This is so they can lookafter their investment.Do they mess around with the little guy? On the whole,they don’t want to fool around with little investments andthey are bully on companies that have high-growthpotential. Gotta think big with these guys!A few sites that help businesses and capital providersmeet are vCapital.com, BusinessFinance.com, and vFinance.com.==> AngelsAn angel, or private investor, is a person looking forgood investment vehicles. This person could be your nextdoor neighbor, your dentist, or a local business owner.Overall, angels are not loan-makers, they are investors. As such, the degree of control and terms under which youreceive seed money for your business will depend on thearrangement brokered between you and your angel.The key to finding an angel in your area is networking.While you may not have an angel in your personal pool ofcontacts, by networking with others you can create a wordof mouth campaign that reaches the ears of privateinvestors. Moving outside of your local area, you can begin asweeping search for private investors atBusinessFinance.com. They maintain a list of thousands of potential investors.==> SBA MicroloansThe Small Business Administration may be helpful inconnecting you with a Microloan. These loans areadministered by non-profit organizations that want tofoster economic development in your area. Contact yourregional SBA office for information on this loan program.You can find your local office using this online locator:http://www.sba.gov/regions/states.html==> Small Business Investment CompaniesThe SBA or your local Chamber of Commerce may be aware of Small Business Investment Corporations operating in yourarea. These organizations are interested in revivingdepressed portions of your community, bringing employmentto places with high unemployment, or even helping certainminority groups. They will work with new businesses if youmeet the criteria they expect. You can visit the AmericanEconomic Development Council for a list of organizations in your area:http://www.aedc.org/==> Business IncubatorsBusiness Incubators help build new businesses. They canprovide help in all phases of start-up, including funding.Investigate whether or not an incubator exists in your areawith the SBA, Chamber of Commerce, local universities, oryour local municipality.==> Your Future CustomersYour future customers may be a source of money. This is aless conventional method, and your timing must be right tocoordinate this type of deal. You simply take advanceorders for your product and collect at the time of theorder. If you take enough orders, you can search for alending institution which makes loans against accountsreceivable. In the final analysis, the name of the game is perseverance. Get your name and idea out there in the real world. Start talking to people about your intent and become a player. Have your business plan ready, be aggressive, and you can get the money you need.