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Financing Your Business

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  • Brett Krkosska
    Title: Financing Your Business Author: Brett Krkosska Contact: brett@homebiztools.com Copyright: ©2002 by Brett Krkosska Word Count: 1202 USE: This article
    Message 1 of 1 , Apr 1, 2002
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      Title: Financing Your Business
      Author: Brett Krkosska
      Contact: brett@...
      Copyright: ©2002 by Brett Krkosska
      Word Count: 1202
      USE: This article may be freely published electronically or
      in print. Please include the resource box at the end of the
      article. Though optional, a courtesy copy of your publication
      would be greatly appreciated. Thank you!
      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
      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 startup 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.

      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
      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:
      ==> 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:
      ==> Business Incubators
      Business Incubators help build new businesses. They can
      provide help in all phases of start-up, 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
      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
      Free ezine subscription: mailto:enews@...
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