| As any entrepreneur will tell you, growing
a business takes blood, sweat and tears -- but even those aren't enough if you don't have
capital. Fortunately, there are a lot of financing options available to business owners.
It can be overwhelming to research and navigate those options, so let this serve as a kind
of introduction to help get you started making -- or at least borrowing -- the big bucks.
The Loan Proposal
First impressions are important to the success of your
business, as well as the success of your loan application. Oftentimes, a lending
institution will only allow you to submit one loan proposal and application, so make it
count. Carefully prepare your proposal letter, being sure to include all relevant
information as clearly as possible. Your proposal should include: an introduction of
yourself and your business, how much financing you need, how the financing will be used by
your business, your requested terms for repayment, and how you will repay the loan.
Include any industry-specific details that will enhance your reader's understanding of
your business, but keep your proposal as concise as possible. And, whatever you do,
proofread carefully. Don't give your reader a reason to doubt your professionalism.
SBA Loans and Programs
The Small Business Association can operate as a guarantor
of loans, and offers a number of programs to help business owners obtain the financing
they need. One valuable service is their loan pre-qualification program. The SBA will
review your loan application and, if necessary, help you strengthen it before you submit
it to your lending institution. They may also be able to sanction it, giving it their seal
of approval, which can only help you through the application process.
The SBA's primary business loan program is the Basic 7(a)
Loan Guaranty. It helps small businesses that might not be able to secure financing
through normal lending channels. Financing can be used for a variety of general purposes,
and loan maturity is generally up to 10 years for working capital and up to 25 years for
fixed assets. Other loans include the Certified Development Company (CDC), a 504 Loan
Program that provides long-term, fixed-rate financing to businesses, and the Microloan
7(m) Program, which offers short-term loans of up to $35,000 to small businesses and
non-profit child care organizations.
Equity Financing
Equity financing is money obtained by a business in
exchange for a share of ownership in the company. Young businesses might receive equity
financing from either angel investors or venture capitalists. Both will typically provide
unsecured funds to help grow a business, and accept the higher risks involved in hopes
that the business will provide them a higher rate of return (ROI) than other, more
traditional investments. Because angel investors and venture capitalists are typically
successful business owners themselves, they often require an active role in the business,
or at least a seat on its board of directors. It's important to remember that savvy
investors will have an exit strategy from day one. If your business doesn't perform to
their expectations, they will cut their losses.
Good luck!
Hopefully, this brief introduction to major funding sources
will prove helpful for you. Again, there are a number of detailed resources available,
both online and at various lending institutions. Thorough research and preparation will
undoubtedly help your capital campaign, and your business, succeed.
Copyright © 2005 Ciere Hoyt Financing REX, Inc. |
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