Financing Your Business
Whether from your own pocket, a financial institution or a private investor, you’ll need startup funds to get your business off and running. Knowing the most efficient and cost-effective way to generate funding can make or break your revenue stream.
Savings, Credit Cards, Home Equity
If you aren’t confident enough to put your own money on the line to finance your business, who will? Be prepared to tap into your passbook savings or money market accounts, cash out your stocks, sell your boat, even secure a home equity loan, if necessary. Many small businesses charge their way through the first year or two of operation. If you choose this path, tread carefully: use only cards with favorable interest rates, read all terms and conditions up front, monitor due dates and make every payment on time.
Look for groups that work with investors, or “angels,” such as the University of Central Florida Venture Lab. Network with friends and business associates, industry insiders in your specific field and “true believers” in what you are doing. For example, if you are launching a landscape or nursery business, consider joining the Florida Nursery, Growers and Landscape Association to meet with like-minded people; some of them might share your vision and be willing to invest.
Some retailers make it easy to furnish office space with no money down and no interest or payments for a year or more. Make that store’s gimmick work for you, but prepare for the day when the bill comes due; failure to meet the repayment terms my result in heavy penalties and interest.
SBA Loan Programs
U.S. Small Business Administration (SBA) loans are made by commercial lenders (banks or credit unions); in return, these institutions receive a federal-government guarantee for part of the loan.
When a financial institution reviews a loan application, regardless of whether that loan is guaranteed by the SBA, the primary deciding factor is an applicant’s ability to repay the loan. 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 Program Includes financial help for businesses with special requirements, such as those involved in exporting to foreign countries or operating in small communities and rural areas, and for other very specific purposes.
CDC/504 Loan Program Provides long-term, fixed-rate financing to acquire fixed assets for expansion or 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. The money may be used for fixed assets such as land, buildings, machinery and equipment. Funds cannot be used for working capital, inventory, debt consolidation, repayment or refinancing.
Microloan Program Provides small, short-term loans to small business concerns and certain types of not-for-profit childcare centers. The SBA makes funds available to specially designated intermediary lenders, which, in turn, make loans to eligible borrowers. These intermediaries are nonprofit, community-based organizations with experience in lending as well as management and technical assistance. The average microloan is about $13,000; the maximum is $50,000. Microloans may be used for working capital and to purchase inventory, supplies, furniture, fixtures and machinery or equipment. Proceeds from a microloan may not be used to pay existing debts or to purchase real estate.