Start Up Funding Options:


Types of Financing

To obtain the funds to launch your business, here are six avenues of attack:

1. Stick close to home. There may be more options than you think, including:

• Personal savings
• Second mortgage on your home
• Business credit card
• Profit-sharing funds from your previous job
• Business credit line
• Friends and relatives
• Business check card

2. If you need more than these sources can provide, consider:

• Bank loan
• Limited partnership
• Private offering

3. Plug into a local network, including the following:

• U.S. Small Business Administration
• Nearest office of the Service Corps of Retired Executives (SCORE)
• Nearest Small Business Development Center (SBDC) or your state economic development department
• Local business associations, such as the chamber of commerce
• State and locally sponsored small-business conferences

4. Seek venture capital only if your business has the potential to achieve multimillion-dollar sales within five years. (For more information, contact the National Venture Capital Association; or the National Association of Small Business Investment Companies)

5. Don't get bogged down hunting for funds; if you encounter problems raising money, try to start your business on a smaller scale.

6. Be sure you know your current credit rating and history-for both you (personal credit rating) and your business. Try to find out which credit reporting service your prospective lender uses and request a report from that company. The three major credit reporting companies are: Dun & Bradstreet, Equifax , and Experian/TRW .

Use the five questions below to provide a framework for focusing on funding your business.

1. List the banks in your area where you will apply for a loan and individuals who might provide you with introductions to bankers.

2. Identify individuals at the bank whom you should approach with your request.

3. What are the key questions you will ask your banker? (Find out how much experience the bank has in lending to your type of business, then ask about the lending/ borrowing details, e.g., loan limits, collateral requirements, interest rates, and other terms.)

4. How will you answer each of these five questions that the banker will inevitably ask you?

a) How much money do you need?

b) How long do you need it for?

c) What are you going to do with it?

d) When and how will you repay it?

e) What will you do if you don't get the loan?

5. Should you seek venture capital rather than a bank loan? Begin answering this question by comparing the key factors bankers and venture capitalists focus on:

Both, of course, will expect you to present a sound business plan.

Check the sources you plan to approach for funding.

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