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Pre Start-up/Assessing Your Business Idea One key to a successful business start-up and expansion is yourability to obtain and secure appropriate financing. Raising capital is the most basic ofall business activities. But, as many new entrepreneurs quickly discover, raising capitalmay not be easy; in fact, it can be a complex and frustrating process. However, if you areinformed and have planned effectively, raising money for your business will not be apainful experience. This information summary focuses on ways a small business can raisemoney and explains how to prepare a loan proposal. Finding the Money You Need There are several sources to consider when looking for financing. Itis important to explore all of your options before making a decision. Personal savings: The primary source of capital formost new businesses comes from savings and other forms of personal resources. While creditcards are often used to finance business needs, there may be better options available,even for very small loans. Friends and relatives: Many entrepreneurs look toprivate sources such as friends and family when starting out in a business venture. Often,money is loaned interest free or at a low interest rate, which can be beneficial whengetting started. Banks and credit unions: The most common source of funding, banksand credit unions, will provide a loan if you can show that your business proposal issound. Venture capital firms: These firms help expandingcompanies grow in exchange for equity or partial ownership. Borrowing Money It is often said that small business people have a difficult timeborrowing money. This is not necessarily true. Banks make money by lending money. However, the inexperience of manysmall business owners in financial matters often prompts banks to deny loan requests. Requesting a loan when you are not properly prepared sends a signalto your lender. That message is: High Risk! To be successful in obtaining a loan, you must be prepared andorganized. You must know exactly how much money you need, why you need it, and how youwill pay it back. You must be able to convince your lender that you are a good creditrisk. SBA Loan Maturities SBA loan programs are generally intended to encourage longer termsmall business financing, but actual loan maturities are based on the ability to repay,the purpose of the loan proceeds, and the useful life of the assets financed. However,maximum loan maturities have been established: twenty-five years for real estate;up to ten years for equipment (depending on the useful life of the equipment); andgenerally up to seven years for working capital. Short-term loans are also availablethrough the SBA to help small businesses meet their short term and cyclical workingcapital needs. Types of Business Loans Terms of loans may vary from lender to lender, but there are twobasic types of loans: Short-term and long-term. Generally, a short-term loan has a maturity of up to one year. Theseinclude working-capital loans, accounts-receivable loans and lines of credit. Long-term loans have maturities greater than one year but usuallyless than seven years. Real estate and equipment loans may have maturities of up to 25years. Long-term loans are used for major business expenses such as purchasing real estateand facilities, construction, durable equipment, furniture and fixtures, vehicles, etc. How to Write a Loan Proposal Approval of your loan request depends on how well you presentyourself, your business, and your financial needs to a lender. Remember, lenders want tomake loans, but they must make loans they know will be repaid. The best way to improveyour chances of obtaining a loan is to prepare a written proposal. A good loan proposal will contain the following key elements: General Information
Business Description
Management Profile
Market Information
Financial Information
How Your Loan Request Will Be Reviewed When reviewing a loan request, the lender is primarily concernedabout repayment. To help determine this ability, many loan officers will order a copy ofyour business credit report from a credit-reporting agency. Therefore, you should workwith these agencies to help them present an accurate picture of your business. Using thecredit report and the information you have provided, the lending officer will consider thefollowing issues:
SBA Financial Programs The SBA offers a variety of financing options for small businesses. Whether you are looking for a long-term loan for machinery andequipment, a general working capital loan, a revolving line of credit, or a microloan, theSBA has a financing program to fit your needs.
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