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found at ohio.com May. 14, 2007
Business owners often start with too little money. It is one of the most common reasons that new businesses don't last. Adequate financing and the know-how to use it wisely are crucial ingredients for your business to grow and thrive. Inadequate funding limits what you can do. The business plan plays a crucial role in determining the cash needs not only for startup costs, but operating costs in the initial period. As the entrepreneur, you need to know these requirements. Keep in mind that lenders and investors, most likely, will require the plan.
Sources and types of small business financing fall into a few broad categories. It will either be debt or equity financing from institutional or informal sources. Debt financing is a loan you pay back. Common sources include family and friends, personal credit cards, home equity lines of credit, commercial bank loans and bank loans backed by the U.S. Small Business Administration (SBA).
Some small businesses also receive a type of funding from suppliers and vendors in the form of special payment terms, discounts or even direct loans. Suppliers want you to succeed, so they are sometimes willing to help.
With equity financing, you offer investors shares of your business in return for cash. Unlike loans, you are not required to pay the money back, but these investors now own a part of your business and will want a return on their investment. Venture capitalists work this way, and stock offerings are a type of equity financing.
Other funding or cost-sharing options include partnerships, joint ventures, alliances, co-branding arrangements and business incubators. Incubators (such as the Akron Business Accelerator), rarely offer cash, but they provide crucial support in the form of free or reduced rent and business services.
No matter the source of funding, always make sure that you have a contractual agreement that spells out the terms of the loan or equity investment. This should include collateral, interest rates, term of investment or loan and payment terms.
The SBA 7(a) Loan Guarantee Program is the main small business financing tool. It helps secure loans up to $1 million for small businesses that are unable to find financing on reasonable terms through conventional lending channels.
The SBA Web site has an excellent section on financing that includes helpful advice on funding basics, estimating costs, personal vs. business loans, equity financing, eligibility standards, steps to successful borrowing and lists of small business lenders. For details on all SBA programs, visit www.sba.gov/financing.
related: Divorcing a man and his $190,000 business credit card debt
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It doesn't matter if you are an African American or if you live in
Africa or the States but a Strong start requires funding