Fund Your Dream
Self-Financing • Loans • Targeted Funding • Opportunities • Venture Capital • Grants
Money has a role to play in small business success, but it’s probably not the one you think. Having a lot of money at the outset doesn’t guarantee continued good fortune for your enterprise any more than running out of it will cause your firm to fail. As a small business owner, you should know that what matters about money is not the total amount you have, but how you choose to acquire and handle it. Here are some suggestions:
Before you ask anyone — friends, family or financial institutions — for money, tap into your own private stash: withdraw funds from savings, cash out your stocks, sell your boat, downsize your standard of living and/or take out a second mortgage.
If none of these is a viable option, pull out your credit card(s). Many small businesses have succeeded by charging their way through the first year or two of operation, but it can be risky. Use only cards with favorable interest rates, read all terms and conditions up front, monitor due dates and make every payment on time.
Another option: store credit. Furnish your office by taking advantage of store gimmicks that allow you to make purchases with no money down and no interest or payments for a year or more. Just be sure to prepare for the day when the bill comes due; failure to meet the repayment terms generally results in heavy penalties and interest accrued from date of purchase. Ouch!
Borrow the Money You Need
Commercial loans, whether from a private or public source, are approved based on the business owner’s capacity to repay as indicated by his/her past business experience, personal credit rating, collateral, industry conditions and the profitability of the business itself. You will improve your chances of securing a loan if you can present a fully developed business plan that shows you are serious about business ownership and you have done your homework. See tips for preparing a business plan.
Commercial Banks are often cautious about making loans to business startups due to the high rate of new business failure; you may have better luck securing funds from a bank once your business is established. Types of funding available include: accounts receivable financing, inventory financing, unsecured lines of credit and commercial loans to satisfy special business needs. Some banks also may provide medium- and long-term loans for businesses to increase working capital, purchase or lease equipment or finance real estate. In choosing a bank for your business, don’t be swayed by national name recognition. Look for a bank where you will feel comfortable and can establish a personal relationship. Small businesses often find locally-owned and -operated banks most receptive to their needs.
Credit Unions offer many of the same services as banks, including small business loans, but as nonprofit institutions, they tend to have fewer fees, higher interest rates on deposits, lower rates on loans and greater emphasis on personal and localized customer service.
Commercial Finance Companies are often willing to take higher risks than banks and, consequently, they typically charge higher interest rates. These firms customarily evaluate loan applications more on the strength of collateral than on a company’s track record or potential for profit.
The U.S. Small Business Administration (SBA) offers no direct loans, other than for disaster assistance. Financial assistance to small firms from the SBA comes in the form of loans that are made by commercial banks or credit unions; in return, these institutions receive a federal-government guarantee for part of the loan. Applications for SBA loans are treated like any other commercial loan application. While good character, proven management ability, collateral and significant owner equity in a business are all important considerations, they carry less weight than demonstrated ability to pay the money back.
• 7(a) Loan For long- or short-term working capital needs, inventory and equipment purchases, expansion/renovation, starting a business or to refinance existing debt under certain specific conditions.
• CDC/504 Loan Long-term, fixed-rate financing to acquire fixed assets for expansion/modernization by for-profit businesses with a tangible net worth of less than $15 million and an average net income of $5 million or less after federal income taxes for the preceding two years; may be used for land, buildings, machinery and equipment.
• Microloan Funds are made available by the SBA to specially designated intermediary lenders that, in turn, make loans to eligible borrowers. The maximum loan amount is $50,000; however, the average microloan is about $13,000. May be used for working capital or purchase of inventory, supplies, furniture, fixtures, machinery and/or equipment; may not be used to repay existing debts or purchase real estate.
Florida-Based Loan Programs are available to entrepreneurs and small businesses in Florida with no more than 25 employees and gross annual revenues of up to $1.5 million through two microfinance programs that are administered at the state level:
• Microfinance Loan Program Short-term loans of up to $50,000 are available through administrators selected by the Florida Department of Economic Opportunity; if selected to receive a loan, the borrower must participate in business training and technical assistance provided by the Florida SBDC Network.
• Microfinance Guarantee Program Enterprise Florida Inc. uses state funds to guarantee loans between $50,000 and $250,000 made by eligible lenders to small and micro businesses in Florida; guarantees cannot exceed 50% of the total loan amount and are limited to 36 months.
For additional information and to apply for either of these programs, www.floridajobs.org/microfinanceprograms.