securing capital for your business
multiple financing options available
While poor management is cited most frequently as the reason businesses fail, inadequate or ill-timed financing is a close second. Whether you’re starting a business or expanding one, sufficient ready capital is essential.
There are two general types of financing: equity and debt financing. The more money, or equity, you have invested in your business, the easier it is to attract financing. If your firm has a high ratio of equity to debt, you should probably seek debt financing. However, if your company has a high proportion of debt to equity, you should increase your equity before you borrow additional money. That way you won’t be over-leveraged to the point of jeopardizing your company’s survival.
On the web
For more information on SBA loan programs, visit www.sba.gov/financing/index.html
There are many sources for debt financing: banks, savings and loans, commercial finance companies, and the Small Business Administration are the most common. Many state and local governments have small business lending programs. Family members, friends and former associates are all potential sources, especially when capital requirements are smaller.
Traditionally, banks have been the major source of small business funding. Their principal role has been as a short-term lender offering demand loans, seasonal lines of credit and single-purpose loans for machinery and equipment. Banks generally have been reluctant to offer long-term loans to small firms. The SBA guaranteed lending program encourages banks and non-bank lenders to make long-term loans to small firms by reducing their risk and leveraging the funds they have available.
Additional equity can be sought from non-professional investors such as friends, relatives, employees, customers, or industry colleagues, although venture capitalists are the most common source. Most specialize in one or a few closely related industries. Most venture capitalists prefer three- to five-year-old companies that have the potential to become major regional or national businesses and return higher-than-average profits.
You may contact these investors directly, although they typically make their investments through referrals. The SBA licenses Small Business Investment Companies, which make venture capital investments in small businesses.
Nadine Boone has been with the U.S. Small Business Administration for over 16 years. She has 10 years of experience as a Loan Specialist, reviewing and analyzing guaranty purchases to identify and resolve compliance deficiencies for the purchase of 7(a) loans in the Office of Financial Assistance – National Guaranty Purchase Center in Herndon, Virginia. Boone earned a certificate of completion from Omega Performance in Commercial Loans for Small Business in March 2013 and graduated from Christopher Newport University in Newport News, VA, with a Bachelor of Science degree in Business Administration and Marketing.