Financing
Finding the money you need:
There are several options to consider when looking for financing. It is important to explore all of your options before making a decision. Some potential sources include:
1. Personal Savings-The primary source of capital for most new businesses comes from savings and other forms of personal resources. Credit cards are often used, but there may be better, less dangerous options available, including small loans.
2. Friends, Family and Fools-Many entrepreneurs look to private sources when starting a new business. Friends, Family and even Fools may loan money at no or low interest rates, which can be greatly beneficial when starting a business.
3. Banks and Credit Unions-The most common sources of funding, banks and credit unions, will provide a loan if you can present a sound business proposal.
4. Venture Capital/Angel Firms-These firms help expanding businesses engage in exchange of equity or partial ownership.
Most Importantly when Borrowing Money: (from the Wilkes SBDC First Step booklet)
-There is NO such thing as 100% Financing.
-There are no government grants to help you start a retail or for-profit business.
-SBA does NOT lend money.
-Your credit history is important.
-A lender will most likely require a guarantee.
The most effective way to calculate your startup costs is to use a worksheet that lists the various categories of costs (both one-time and ongoing) that you will need to estimate prior to starting your business. The following tools will assist you in performing that task:
PaloAlto Startup Cost Estimator
Business Know-How Startup Calculator
How to Pay for Your Business
We are often asked about various loans and grants that may be available to small businesses. I can tell you upfront that there are NO grants available for small businesses, that we are aware of. However, there are numerous loans available.
Loan amounts are available from $250-$500,000 and are made up of a combination of local, state, and federal and private dollars. Because every project is different - the structure to every financial deal is also different.
In addition to low interest loans, we also have information on KOZ/KIZ opportunities, ANGEL and VC funding, as well as minority and women owned opportunities.
Please contact us at This e-mail address is being protected from spambots. You need JavaScript enabled to view it to discuss your project in greater detail.
The Five C's of Financing:
What Banks are Looking for:
(from the Wilkes SBDC First Step booklet)
1.) Credit: Your past history is a reflection of what the lender will feel you are most likely to do in the future. If there is any blemish in your credit report, be up front with the lender: Explain why it happened then and why it will not happen now. If your past credit is good, all the better.
2.) Cash Injection: The lender will usually require you to contribute with at least 25-30 percent of the amount of your total start up projected costs.
3.) Cash Flow: The business cash flow represents all cash sources available to repay the loan. It should be shown in the financial plan. Thus it is essential to develop a strong business and financial plan, that shows realistic and prosperous projections. Financing sources may also look to sources of income other than the business to repay the loan, such as investment income.
4.) Character: What is your personal background? Do you have any experience in the industry in which you propose to open a business? The character requirement can be covered by supplying a personal resume of all who will have a share of ownership in the business and key employee(s). The more experience you have, the less risk a lender will be confronted with when deciding whether or not to give you a loan.
5.) Collateral: The percentage financed by the lender must be adequately secured with collateral. The best form of collateral is property, such as land or the building that will house the business. Inventory, equipment and personal property can also be used as collateral. In fact, most lenders will require owners of the business to sign a personal guaranty and may also require a mortgage on personal property, such as a home. Inventory and equipment are good collateral, but will not be given a dollar for dollar match when valued by the lender.
General Financing and Accounting
All businesses require some form of financing. An integral component of starting a successful business is raising sufficient capital. There are many challenges here, but numerous resources are available to help you.
- Start-Up Costs
Plan for the initial expenses your business will have. - Estimating Costs
Learn to anticipate your initial business cost. - Breakeven Analysis
Know when your business breaks even and when you can expect a profit. - Financing Basics
How do you plan to finance your business? This is especially important for new enterprises. - Equity Capital
Learn about the pros and cons of offering stock. - Handling Finances
It is essential for the business owner to know how to manage his/her finances. - Personal vs. Business Finances
You must know your personal finances and credit before starting out on your own. - The Benefits Of Making Your Banker Your Friend
Cultivating a friendly relationship with your banker will benefit your business in many ways. - Borrowing Money
Know the essentials in borrowing money. Can your business afford it? - Fair Credit Reporting
Learn where your credit report comes from and how it affects your loan prospects. - Credit Scoring
Know how the bank uses a credit scoring system to determine their acceptance of your loan application. - Credit Factors
The basic elements examined in every loan application.
Even more financial information can be found on the following websites:
Wilkes University Small Business Development Center
U.S. Small Business Administration
