| "Whether starting up a small business or expanding an | | | | because rates can be among the lowest and a bank |
| existing company, you almost certainly will need | | | | loan can make you look good to other lenders. The |
| financing. But which option or combination of financing | | | | problem is that many small businesses have a tough |
| options: personal savings, friends and family, | | | | time getting bank loans because banks are pretty |
| commercial or government loans, outside investors? | | | | conservative lenders. Youll need to show them a solid |
| Which options will most likely be available to you and | | | | business plan, a good personal credit rating, and |
| what are their pros and cons? | | | | prospects for steady cash flow. You may be asked |
| Before choosing financing options, however, determine | | | | to guarantee the loan with personal assetssomething |
| how much money youll need. That entails developing a | | | | not all entrepreneurs are willing to do. |
| good business plan, which benefits not only you but will | | | | Shop around. Banks have different lending standards |
| be de rigueur for most financing arrangements. Books, | | | | and one may lend where another wont. |
| Web sources, software, and classes are available on | | | | Personal loans. Personal loans from banks are easier |
| how to write a good plan. | | | | to get and often dont require collateral. But interest |
| Dont be too conservative estimating the amount of | | | | rates are likely to be double or even triple a |
| financing you need. Undercapitalization leads to a third | | | | commercial loan rate and lenders may balk at using |
| of all bankruptcy filings for small businesses, according | | | | the loan for a small business. Some finance their |
| to the federal Small Business Administration. Some | | | | business with a home-equity loan, but that puts your |
| experts recommend estimating a realistic amount and | | | | home at risk. |
| then adding 10 percent to it just to be sure you didnt | | | | Federally-backed loans. The federal Small Business |
| overlook anything. Others suggest having enough | | | | Administration ( provides an array of loan options |
| funds in reserve to pay your personal living expenses | | | | through private lenders (shop around). The main |
| for at least one year so as not to put a drag on your | | | | program is called 7(a), which provides funding for |
| new business cash flow. | | | | start-ups or existing businesses for everything from |
| Personal savings. The nice thing about this option is | | | | land to equipment to working capital. A micro-loan |
| that no one will turn you down. Of course, you may | | | | program ($35,000 or less) is available for small firms |
| not have sufficient savings or you may not want to | | | | employing five or fewer, particularly firms with minority, |
| risk your personal savings (some financing options may | | | | low-income, or disabled owners. |
| compel you to, anyway). | | | | Equity partners. Bringing in other investors is an option |
| Borrow from family or friends. This is a popular choice | | | | many small-business owners are loath to do, but may |
| when you cant get standard financing. Still, it can come | | | | have to out of necessity. Financing options from |
| with great peril because of the emotional bond for | | | | private investors can be complicated and youll likely |
| both parties. Expect some strained times if things go | | | | want assistance from an attorney experienced in this |
| sour, so be sure everyone thoroughly understands | | | | area. |
| upfront the risks of their loan. Show them your | | | | The advantage of equity partners is that with a good |
| business plan and put the loan in writing. | | | | plan and a promising business you may be able to |
| Put in on plastic. Credit cards are easy to get and you | | | | bring in much-needed cash for a venture that lenders |
| dont give up control or have relatives or friends | | | | might shun because of high risk or lack of stable cash |
| peering over your shoulder. But plastic can be | | | | flow. |
| expensive and risky borrowing, especially if | | | | The downsides are that you dilute ownership, investors |
| Page 2/Financing Alternativesyou fall behind on your | | | | are likely to offer lots of advice and criticism, and the |
| payments. Thats why business experts often | | | | process of lining up investors can take much longer |
| recommend limiting the use of cards for smaller, | | | | than other forms of financing. |
| temporary cash needs you can pay back more easily, | | | | Each of these financing options has their pros and |
| while using other financing for larger, longer-term | | | | cons, so its critical to develop upfront a detailed, |
| expenses. | | | | well-conceived business plan in order to determine |
| Commercial loans. Bank loans are often desirable | | | | your best funding options. |