3 Sources For Funding Your Business
Securing sufficient funds for your new business is vital to its long-term success. While most lenders expect you to put up some of your own money, you’ll need to secure substantial funding from other sources. Here are three sources of funding to consider when starting your own business.
1. The U.S. Small Business Administration
The U.S. Small Business Administration (SBA) is an invaluable resource for entrepreneurs. It offers several loan programs through participating local banks. For example, the Guarantee Loan Program provides loans to small business owners who cannot secure financing through other sources. While there’s no limit to the amount you may borrow, the SBA can only guarantee up to certain amount. In addition, you must provide collateral, such as your home, to support the loan. Check with your local SBA office for more information about loan programs or visit their web site at www.sba.gov.
2. Small-Business Investment Companies
Licensed by the SBA, Small-Business Investment Companies (SBIC) also provide funding. To qualify for an SBIC loan, your business must meet a minimum net worth and its average net (after-tax) income for the preceding two years must not exceed their max limit. You can obtain a directory of all participating SBIC lenders by contacting the SBA.
3. Banks
When applying for a bank loan be sure to prepare an accurate business plan that demonstrates your business’ profit potential. Using your business plan as a guide, potential lenders will review your personal credit history, the experience level of key personnel within your business and the physical condition of your facilities and equipment. Banks also expect you to secure the loan with collateral, such as your home or other property. Remember, the bank’s primary concern is your ability to repay your loan, so make sure you can demonstrate this when you apply.
While family and friends are often a convenient source of funding, you should resist this temptation. If you cannot secure finances through other means, then reassess your business plan. Your plan should effectively demonstrate your vision to potential lenders. If you need help with the numbers, be sure to consult a financial professional before you approach potential lenders.
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