Financing A Small Business

Get your personal finances in order:

• Pay off consumer debt
• Prepare financially to leave current job
• Shrink spending
• Manage stressors at home (communicate with family members)
• Determine that you have enough insurance (long term disability, term life, health)
• Have a fair amount of savings (education, retirement, cash reserves)
• Consider part time work as you start your business
• Plan financially for time off (vacations and rest)

Determine start up costs:

• One time costs (equipment, permits, legal fees)
• Working capital (covers everyday costs)
• Reserve (covers variances from budget)

Criteria for SBA loans include the following:

• Owner investment of 30% or more and ability to guarantee the balance of the loan
• Owner is active in management of business
• All key players must have clean credit history
• Business must project adequate cash flow to pay of loans (debt/net worth ratio must fall within SBA guidelines)

Sources of financing:

• Bootstrapping -- Most small businesses are initially financed this way. Bootstrapping includes using your own financial resources and equity investments and/or loans from family, friends, and relatives.
• Outsourcing
• Banks -- Asset Based Financing, Line of Credit, Letter of Credit
• Non Banks -- SBA Loans (Small Business Administration)

Sources of other financing:

• SBIC Loans (Small Business Investment Companies)
  1-800-827-5722
  www.sba.gov/INV/venture.html
• Venture Capital - Cash in exchange for equity
• Minority Funding/Resources
• National Bankers Association
  202-588-5432
  www.nationalbankers.org/
• SBA (Small Business Administration)
  www.sba.gov/index.html
• U.S. Department of Minority Business Development Agency
  202-482-0404
  www.mbda.gov