Factors to Consider Consider the following factors as you gain and maintain financing for your business: Credit and financial history. Yo...
Factors to Consider Consider the following factors as you gain and maintain financing for your business: Credit and financial history. Your credit and financial history are important to potential lenders. If you can’t show your ability to manage your personal finances, it will be difficult to secure financing from third parties. Experience and expertise. Lenders also look at the management experience and education you have that can be directly applied to the business you are opening. If you have management experience or hire key managers, lenders will look at their experience as well. Strengthen your position by taking small business management courses and ensuring that your managers are equally trained. Ability to repay the loan. Consider how well you can pay back what you borrow. The interest rate you receive will be directly related to your ability to repay the loan. If you are a higher risk, meaning your credit history or personal finances are not stable, you could pay a higher interest rate. Trigger points. Develop trigger points in your business plan that will alert you to certain situations that could be signs of trouble. If you put these alerts in place early enough, you may be able to turn your business around before having to close your doors.
Diversification of customers. Make sure you are not depending on only one or a few customers for all your profits. What happens if these few customer no longer use your product or service? You need to have a diverse array of customers to be successful. Insurance. Protect yourself from catastrophic situations. In case you are no longer able to work because of injury or even death, you should make sure you have enough disability and life insurance to pay off your debts to protect yourself and your family. Incorporation. If you don’t incorporate your business when you first open, consider doing this at some point. Talk to your accountant and seek legal advice when you are ready to incorporate. Contingency Plans. Should your business not get to a profitable state and closure is inevitable, talk to your investors and lenders. It may be possible for you to continue making loan payments by selling your business assets. Your investors and lenders may be able to help you develop plans to pay your debts. FDIC OMWI Education Module:
Fueling Your Business - A Guide to Financing Your Small Business Page 10 of 10 Fueling Your Business: A Guide to Financing Your Small Business Key Takeaways from This Module A range of possible financing options exists; be aware of the differences so that you can make educated decisions for your growing business or to grow your business. Determine your expenses and costs before seeking funding so that you know exactly how much you need to finance. Options for financing range from bank loans to angel investors, but each has costs and benefits that you should consider. Understand debt and equity financing to better prepare yourself for the requirements of different types of funding. Consider other factors (such as insurance and contingency plans) that are important when obtaining and maintaining adequate financing for your business. Sources and Citations Small Business Administration, Understanding the Basics
Shirleen Payne, ProSidian Consulting, LLC, Fueling Your Business - A Guide to Financing Your Small Business Articles Base, Small Business Financing Success with Realistic Choices Go 4 Funding. Small Business Funding USA Today, Funding Sources for Small Business About.com, Peer to Peer Lending – A Source of Small Business Financing The Houston Chronicle. Sources of Finance for Small Business Startups Q and As, What is an Unsecured Small Business Loan? Grants.gov, Who Is Eligible for a Grant? Merchant Services, Small Business Grant Availability Wikipedia, Crowdfunding Bloomberg BusinessWeek, Clues to How the SEC is Thinking About Crowdfunding Jennifer Blythe Whitley, ProSidian Consulting, LLC, Fueling Your Business - A Guide to Financing Your Small Business
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