I need money to start my business, how do I obtain funding?
OBTAINING FINANCING FOR YOUR BUSINESS
It is a common misconception among small business start-ups that once you have an idea, the next logical step is to go to the bank for a loan. It is important to realize, however, that before you approach a banker for a loan, you must be prepared to answer a number of questions about your business and the way you plan to use the money.
It is first important to realize that your banker should be considered a source of assistance. Your commercial lender is familiar with the process of starting a small business and with the economic conditions in your area. As a professional your banker will have a specialized insight into your specific venture. Once your business is in operation you will want to establish a continuing relationship with your banker as a resource you can use not only for additional funding throughout the life of your business, but also as an advisor in many of your financial decisions. It is important to select a commercial lender with whom you are comfortable and to establish a solid relationship from the beginning.
One of the best ways to begin this relationship is to come to your banker fully prepared to answer the following questions.
1. What type of business do you plan to open? - This question can best be answered by presenting your banker with your business plan. This should include a summary of the business, a description of the product or service, and an analysis of the projected market.
2. What will be the management structure of your business? - In other words, how many principal partners will it have and what will be the responsibilities of each. Also include a personal resume for each of these individuals and a description of the type of experience they've had that allows them to contribute to your new business.
3. What type of equity and collateral are you prepared to provide? - As a general rule, you should be prepared to provide 25 to 50 percent of the amount of the cash you will need on your own, without borrowing. Beyond that, you will need to provide sources of collateral that can be used to secure the loan.
4. What kind of cash flow and income do you expect in the first few years of business? - Your accountant should be able to help you prepare forms that outline projected cash flow and income over the first year of operation, as well as a sample balance sheet. These forms should also be included as part of your business plan.
5. What is your personal financial situation? - Be prepared to present your own personal financial statement, as well as one for each partner in the business and anyone else owning at least 20 percent of the business. It is also a good idea to include personal income tax statements for the past 3 years.
6. How do you plan to use the money loaned to you? - Banks offer several different types of loans and the type you qualify for depends on the way you plan to use the money. Will you be constructing a new building or modifying an existing one? How much will you be spending for initial equipment, office supplies, and inventory? Answering these questions in detail should also help you to establish exactly how much money you will need.
Many of these questions will be answered through the process of developing your business plan. Be sure to pay special attention to these aspects of your planning. This shows your banker that you have given the business considerable thought. You will be expected to leave a copy of your business plan with the loan officer but this verbalized part of the loan review process is one way a lender can determine if you really understand the business in which you are involved. If you approach your banker unprepared, you will likely be asked to provide additional information and told to make a second appointment.
Remember, you only get one chance at a first impression, let's make it a positive one.
Your banker may come back to you with a request for further information or to express some concerns and give you a chance to respond. Because this can be a somewhat lengthy process, most banks recommend that you schedule your financial appointment several months before actual start-up and as soon as you have access to the necessary information.
I’m a Woman Business Owner. Are there any programs for me?
Woman Business Centers provide a wide range of services to women entrepreneurs at all levels of business development, including the principles of finance, management, and marketing, as well as specialized topics.
For further information of what the Women Business Centers can do for you or to find a Center near you. Visit: http://www.onlinewbc.gov/
What is SCORE and how can they help my business?
SCORE (Service Corps of Retires Executives), is a 11,500-member volunteer associates sponsored by the U.S. Small Business Administration. It matches volunteer business-management counselors with present and prospective small business owners in need of expert advice. SCORE has experts in virtually every area of business management and maintains a national skills bank to help identify the best counselors for its clients. The collective experience of SCORE counselors spans the full range of American enterprise.
SCORE volunteers are either retired or active business owners or managers. They can meet with you at a local SCORE chapter office, an SBA office or, oftentimes, your place of business. SCORE members volunteer because they have enjoyed successful careers in business and want to give something back to their communities. These volunteers serve without pay, enabling SCORE to provide counseling services without charge or obligation to the client. For more information, please call SCORE at (313) 226-7947 or visit www.scoremichigan.org
