To obtain the funds to launch your business, here are six avenues to explore:

1. Stick close to home. There may be more options than you think, including;

  • Personal savings
  • Business credit card
  • Business credit line
  • Business check card • Second mortgage on your home
  • Profit-sharing funds from your previous job
  • Friends and relatives

2. If you need more than these sources can provide, consider:

  • Bank loans
  • Limited partnership
  • Private offering

3. Plug into a local network, including the following:

  • U.S. Small Business Administration: 1-800-827-5722
  • Nearest office of SCORE, mentors to America’s small business: 10-800-634-0245
  • Nearest Small Business Development Center (SBDC) or your state economic development department
  • Local business associations, such as the chamber of commerce
  • State and locally sponsored small business conferences

4. Seek venture capital only if your business has the potential to achieve multimillion-dollar sales within five years (For more information, contact the National Venture Capital Association at 703-524-2549 or the National Association of Small Business Investment Companies at 202-628-5055).

5. Don’t get bogged down hunting for funds; if you encounter problems raising money, try to start your business on a smaller scale.

6. Be sure you know your current credit history-for both you (personal credit rating) and your business. Try to figure out which credit reporting service your prospective lender uses and request a report from that company. The three major credit reporting companies are: Dun & Bradstreet (1-800-234-3867), Equifax (1-800-685-1111) and Experian/TRW (1-888-397-3742)

ABC’s of Borrowing: Five Types of Business Loans, Terms and Purposes
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Use the five questions below to provide a framework for focusing on funding your business:

1. List the banks in your area where you will apply for a loan and individuals who might provide you with introductions to bankers.

2. Identify individuals at the bank to whom you should approach with your request.
a) _________________________________________ c) ________________________________________
b) _________________________________________ d) ________________________________________

3. What are the key questions you will ask your banker? (Find out how much experience the bank has in lending to your type of business, then ask about the lending/borrowing details-e.g. loan limits, collateral requirements, interest rates and other terms.)

4. How will you answer each of these five questions that the banker will inevitably ask you?

a) How much money do you need?
b) How long do you need it?
c) What are you going to do with it? d) When and how will you repay it?
e) What will you do if you don’t get the loan?

5. Should you seek venture capital rather than a bank loan? Begin answering this question by comparing the key factors bankers and venture capitalists focus on:

Banker
Collateral
Covenants in loan agreement
Ration analysis
Ability to repay
Financial statements

Venture Capitalist
Market demand for your market or service
Equity position and value of stock
Compound annual rate of return (typically 35% to 50%
Exit within 5 to 7 years
Management’s background

Both, of course, will expect you to present a sound business plan.

Check the sources you plan to approach for funding:

Personal Resources
 Savings
 Second mortgage
 Insurance
 Profit-sharing

Close-to Home
 Friends
 Family

Outside Sources
 Bank loan
 SBA loan
 Business credit card
 Business credit line
 Venture capital
 Limited partnership
 Private offering

California Coastal Rural Development Corporation

221 Main St
Suite 301
Salinas, CA 93901
Phone: (831) 424-1099
Fax: (831) 424-1094
2625 S. Miller St
Suite 106
Santa Maria, CA 93455
Phone: (805) 349-0798
Fax: (805) 623-8396
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