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"Special Report"
Financing Your New Business Page 2
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Financing
Your Business
by Brett Krkosska
Finding
the capital you need to finance your business can be a confusing and complicated
process. Many great ideas stumble at this stage of business building.
Yet,
moving through this stage breathes life into your business - giving it
forward momentum like a roller coaster barreling down the first big hill.
Finding money is just a matter of being informed and choosing the right
path for money to enter the business.
There
are several options available to you when searching for financing. Some
methods of raising funds are less difficult than others, but all require
some planning. Basic planning requires that you know the answer to these
three questions:
1. What
will you use the money for?
You
must know exactly where the money will be used. You must be specific,
as generalities are recipes for disaster. Carefully identify the areas
where money should flow into your business.
2. How
much money do you need?
You
should calculate your needs to carry you through initial start-up and
into your first several months of operation. It's necessary to have a
realistic picture of your 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 to repay 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 financial statements for your business.
You need to show sufficient cash flow in your business for repayment.
You do this with information as found in an income statement, a balance
sheet, and a projected cash flow statement.
SOURCES OF MONEY
Here
are some options for funding your small business:
==>
Credit Cards
One
form of personal debt you should avoid is cash
advances on your credit card. It's very tempting and very easy to get
cash this way. If you do this you should pray. Pray with vigor. Then ask
for forgiveness. This option is very expensive and extremely risky. Credit
cards should only be used for short-term expenses, and not as a means
to entirely fund a start-up business.
==>
Friends and Family
Borrowing
from your friends and family, especially the rich ones, is a good way
for new businesses to get money. It's not uncommon for relatives to make
low interest or no interest loans to family members. Just make sure all
parties are aware of any risks. You don't want to alienate your family
if the business falls on hard times and you have trouble repaying the
loan.
==>
Personal Savings
You
can use your personal savings or assets that can be converted to cash.
If your savings are already low, put off that vacation, drive your old
car a bit longer, avoid large purchases -- be thrifty in all areas and
you can save faster for your business. Keep in mind that most lenders
won't finance 100 percent of your business, so you'll need to invest some
money yourself.
==>
Line of Credit
If you
have good credit, you may be able secure a line of credit from your bank.
This can be handy in providing you with a source of working capital in
the opening round of your business.
==>
Bank Loan
Using
collateral, such as the equity in your home, you can approach your bank
for a loan against your business. This may or may not be an option for
you, since some banks prefer to separate personal equity from business
debt.
==>
Venture Capital
People
with lots of money love to make lots more money. Your job is to convince
venture capital providers that you and your business can help them make
lots more money.
You
must be able to show you've got a real winner. You must 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 investment is sound. They generally
do this by taking ownership over a pretty big part of the company, and
often require control of major portions of the business. This is so they
can look
after their investment.
Do they
mess around with the little guy? On the whole, they don't want to fool
around with little investments and they are bully on companies that have
high-growth potential. Gotta think big with these guys!
A few
sites that help businesses and capital providers meet are vCapital.com,
BusinessFinance.com, and vFinance.com.
==>
Angels
An angel,
or private investor, is a person looking for
good investment vehicles. This person could be your next door 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
you receive seed money for your business will depend on the
arrangement 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 of contacts, by networking with others
you can create a word of mouth campaign that reaches the ears of private
investors.
Moving
outside of your local area, you can begin a
sweeping search for private investors at
BusinessFinance.com. They maintain a list of thousands of potential investors.
==>
SBA Microloans
The
Small Business Administration may be helpful in
connecting you with a Microloan. These loans are
administered by non-profit organizations that want to foster economic
development in your area. Contact your regional 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 Companies
The
SBA or your local Chamber of Commerce may be aware of Small Business Investment
Corporations operating in your area. These organizations are interested
in reviving depressed portions of your community, bringing employment
to places with high unemployment, or even helping certain minority groups.
They will work with new businesses if you meet the criteria they expect.
You can visit the American Economic Development Council for a list of
organizations in your area:
http://www.aedc.org/
==>
Business Incubators
Business
Incubators help build new businesses. They can provide help in all phases
of startup, including funding. Investigate whether or not an incubator
exists in your area with the SBA, Chamber of Commerce, local universities,
or
your local municipality.
==>
Your Future Customers
Your
future customers may be a source of money. This is a less conventional
method, and your timing must be right to coordinate this type of deal.
You simply take advance orders for your product and collect at the time
of the order. If you take enough orders, you can search for a lending
institution which makes loans against accounts receivable.
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.
------------------------------------------------------
Brett Krkosska provides 'how-to' advice on family and home-based work
issues. Get start-up guidance, business ideas and inspiration at: http://homebiztools.com
------------------------------------------------------
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