Posted on 20. Oct, 2010 by admin in Uncategorized
By Vincent Ragland
Wouldn’t you love to have a few million dollars to start your business? Me too! With a great idea and a great business
plan, you probably feel almost entitled to get the funding you’re seeking. Realistically, for most entrepreneurs,
you must prove your concept first before anyone will put up that kind of money. But most businesses require some sort of initial
capital for things like inventory, marketing, physical facilities, incorporation expenses, etc.While poor management is cited
most frequently as the reason businesses fail, inadequate or ill-timed financing is a close second.
When exploring your funding options, there are several factors to consider:
Are your needs short-term or long-term? How quickly will you be able to pay back the loan or provide return?
Is the money for operating expenses or for capital expenditures that will become assets, such as equipment or real estate?
Do you need all the money now or in smaller pieces over several months? Are you willing to assume all the risk if your company doesn’t succeed, or do you want someone to share the risk?
Fundamentally, there are two types of business financing:
Debt financing – You borrow the money and agree to pay it back in a particular time frame at a set interest rate. You owe the
money whether your venture succeeds or not.
Equity financing – You sell partial ownership of your company in exchange for cash. The investors assume all (or most) of the risk–if the company fails, they lose their money. But if it succeeds, they typically make much greater return on their investment
than interest rates. In other words, equity financing is far more expensive if your company is successful, but far less expensive if it isn’t.
Let’s take a closer look at the many options available for start ups.
Friends and family are still your best source for both loans and equity deals. They are typically less stringent regarding your credit and their expected return on investment. Prepare a business plan and formal documents—you’ll both feel better, and it’s good practice for later.
Credit cards are a great tool for cash flow management,assuming you use them just for that and not for long term financing. Keep one or two cards with no balance on it and pay it off every month to give yourself a 30 to 60 day float with no interest.
Bank loans come in all shapes and sizes, from micro loans of a few hundred dollars, typically offered by local community banks, to six figure loans by major national banks. These are much easier to obtain when backed by assets (home equity or an IRA) or third-party guarantors (government-sponsored SBA loans or a cosigner). If you obtain a line of credit rather than
a fixed-amount loan, you don’t start paying interest until you actually spend the money.
Vincent C. Ragland is
President and CEO of PLANS.
PLANS. can be reached at (312)
286-6886 and by Email at