Fund It: Get financing for your start-up
Self-Financing • Loans • Targeted Financing • Private Investors • Crowdfunding • Grants
If you’ve been working the program so far — you’ve chosen a name and a location, you’ve begun applying for permits and licenses, you’re working on a business plan, etc., etc. — you may be scratching your head and wondering what to do about the elephant that remains in this room. Money. Wonder no more. The time has come to ask yourself: “How am I going to pay for this?” and consider the following options.
You can self-finance.
Before you seek money from someone else, use your own. Withdraw funds from savings, cash out your stocks, sell your boat, downsize your standard of living, take out a second mortgage. If these aren’t viable options, pull out your credit card(s). Many small businesses have charged their way through the first year or two of operation, but beware. Only use cards with favorable interest rates, read the fine print up front and make every payment on time.
You can borrow the money you need.
Commercial loans, whether from private or public sources, are approved based on the business owner’s capacity to repay as indicated by factors such as past business experience, personal credit rating and collateral. A fully developed business plan that makes a strong case for potential profitability can sway the odds of securing a loan in your favor.
commercial banks are generally cautious about financing business startups due to the high rate of new business failure; you may have better luck securing a bank loan once your business is established. Types of available funding vary from bank to bank. Small businesses may find locally-owned and -operated banks more receptive to their needs than those with national name recognition.
CREDIT UNIONS offer many of the same services as banks, including small business loans, but as nonprofit institutions, they tend to put more emphasis on personal service and feature higher interest rates on deposits and lower rates on loans.
COMMERCIAL FINANCE COMPANIES are often willing to take higher risks than banks and typically charge higher interest rates as a result. These firms customarily evaluate loan applications more on strength of collateral than a company’s track record or profit potential.
THE U.S. SMALL BUSINESS ADMINISTRATION (SBA) offers no direct loans, other than for disaster assistance. SBA financial assistance to small firms takes the form of loans made by commercial banks or credit unions which, in return, receive a federal-government guarantee for part of the loan. Applications for SBA loans are treated like any other commercial loan application; demonstrated ability to pay the money back is the primary consideration.
• 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 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; the average 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 FINANCIAL SUPPORT PROGRAMS available to entrepreneurs and small businesses include:
• Microfinance Loan Program Short-term loans of up to $50,000 are available to businesses with no more than 25 employees and gross annual revenues of up to $1.5 million 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.
• The Florida Opportunity Fund Working with lenders and other outside organizations Enterprise Florida helps startup and early-stage small businesses access capital through either a state-run venture capital fund or a fund of funds that invests in other venture capital funds that, in turn, invest in individual businesses. Resources and available talent help determine the vehicle.
For additional information, visit www.floridajobs.org/microfinanceprograms.
What's the Score?
Since first-time business owners have no business credit history, lenders and suppliers must rely on personal credit scores to determine eligibility for financing. So before you submit a loan application, know your score by requesting a free copy of your credit report at www.annualcreditreport.com.