Finding Capital
Starting a business requires funding in the form of start-up
capital and initial operating costs. Although personal savings
and loans may be adequate to start a small business along with a
great idea, some businesses require a lot more capital that can
be borne by savings alone. Of course, with greater capital
required comes a higher risk level as more sales and revenue
would need to be generated by the business in order to support
the repayment amount as well as to produce a healthy return on
investment percentage.
The second option to obtaining capital would be from people that
you know, such as friends, family and relatives. Equity
financing could be obtained from there sources, or just as a
low-cost loan payable over a certain period of time. This will
be a great benefit to you as you won't have to adhere to
conditions and the higher interest rates imposed by financing
intuitions or other stakeholders.
The most common source of financing would be from lenders such
as banks and credit unions. These organizations are in the
business of providing financing and will impose a particular
interest rate on your loan. Apart from that, they may impose
restrictions on conditions on repayments and even on limitations
on the usage of funds provided to you. This type of loans are
normally known as debt financing, as obtaining capital from
these sources increases the debt of your company.
Equity financing can be obtained by other shareholders or
venture capitalists. Capital obtained from venture capitalists
are regarded as an investment into the company and not as a
loan. As venture capitalists are very selective in the projects
that they fund, as they want to ensure that their investments
pay off multiple-fold. Therefore, venture capitalist funded
projects are subjected to scrutiny from venture capitalists in
terms of management, decision making and accounting procedures.
The U.S. government has realized that the importance of funding
to fuel the growth of small businesses and thus have launched
the Small Business Administration organization for this purpose.
There are various loans offered based on the nature of the
business, the amount of financing required as well as the
repayment period. Apart from that, certain types of loans are
funded by lending partners of the SBA, with the SBA acting as a
guarantor for the loan. This way, a longer loan repayment period
can be obtained, with a lower risk on the lender.
There are also many other capital sources that can be obtained
by a small business. This would be a loan from a credit card,
employee stock ownership, home loan refinancing or even purchase
order financing. All of these are just glimpses of the various
ways in which money can be obtained to start a business, each of
them with varying cost levels. Therefore, it is up to the
business owner to decide on the type of financing source would
be most suited for the business.
Once you have determined your financing source, you will then
need to develop a business plan that you will propose to your
potential capital source. This requires expertise in producing a
viable and impressive business plan, and therefore needs to be
as comprehensive as possible in provided business information,
forecasts and budgets.
The first section of the business plan would be on the
background of the company. Here, details of the name of the
business, the physical location, the amount required for the
startup and information on the business owners are provided.
Then, the next section will be a holistic explanation on the
nature of the business, its uniqueness, the long-term potential
as well as the sustainability of the business. A listing of key
success factors as well as the strength of the business idea
would be ideal to be used to support the business plan.
After that, a listing of the management team of the company,
their background and credentials as well as their stake in the
company is drafted. Information on the industry and market of
the business will follow, where the maturity and opportunities
available within the industry is highlighted. Finally, critical
financial information, incorporating forecasts and budgeting are
listed. This would be an area of utmost importance to anyone
evaluating your plan, and thus needs to be done with accuracy to
create a positive impression.