Small Business Capital
|
Raising small business capital can be a difficult venture, especially in tough economic times. But it's not impossible, especially for individuals who are motivated and well-prepared. Proper preparation begins with creating a detailed written proposal that outlines specific goals, provides relevant financial information, and includes a section on the company's history, its key personnel (including their expertise and professional experience), and targeted customer demographic. All of this information should be part of the company's ongoing growth strategy and easily accessible to upper management. But if it hasn't been prepared beforehand, the very process of pulling the information together can be an interesting and worthwhile exercise. For the first time, a company's management team may be required to give considerable thought to long-range goals and growth strategies. This can only benefit a company, especially when economic times are difficult and every dollar needs to be wisely spent to get the best return for its (shrinking) value. The company needs the information, particularly the financial data, to ensure the right amount of small business capital is sought. If the company borrows too much, revenue is wasted on financing costs. If too little capital is borrowed, it may not be possible to achieve the projected goals.
The specific goals will differ, of course, according to the company's size, its industry, and how long it has been in business. An entrepreneur who is starting a web-based consulting agency may not need much capital. For example, this person may already have the needed computer equipment, but requires financing for marketing and promotional purposes. This entrepreneur may be able to tap into personal savings accounts, a home equity line of credit (HELOC), or access credit cards to get the needed funds. But an established accounting firm may want to increase the number of employees on staff during tax season. The partners need small business capital to pay for office space and equipment, payroll, and advertising. For a reputable firm with longstanding financial relationships, a simple bank loan may be all that's needed to acquire the needed capital. These funds can be used to achieve the short-term goals of increasing staff for a limited amount of time. Even so, the partners will need to show the banking officials that they have a plan for repaying the loan and that the borrowed funds will produce increased revenue for the firm.
Lenders of small business capital will be interested in a company's financial records, whether the potential borrower is an entrepreneur or an established business. The entrepreneur will need to include detailed information on expected expenses to potential lenders or investors. Perhaps a person wants to open a coffee shop in a small town. Funds will be needed to either rent or purchase a suitable location, for the coffee-brewing equipment, disposable goods such as cups and napkins, and other expenses. The entrepreneur may enter a partnership agreement with an investor for a share of potential profits. She can also look into leasing space and equipment to reduce the upfront costs of starting the venture. Conversely, the management team of a chain of toy stores will be able to produce financial records that include past profit-and-loss statements, credit history, and other accounting records. This solid information can be used to borrow funds to expand product lines or to open new franchises. If the company's financial history is solid enough, management may obtain unsecured financing. However, depending on the particular circumstances, many small business capital investors will require some type of collateral. The chief financial officer for the toy store chain should have the expertise and knowledge to make good monetary decisions on behalf of the chain's partners or stockholders.
The Old Testament says this about lending money: "Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury: that the LORD thy God may bless thee in all that thou settest thine hand to in the land whither thou goest to possess it" (Deuteronomy 23:20). Usury refers to interest rate. Many states have laws about usury rates because high interest rates can make it difficult for borrowers to pay off their small business capital loans. Companies, especially large ones, often find it difficult to operate on a cash-only basis. But companies with high debt levels are at risk of potential bankruptcy. Lenders and investors will look at a business plan's section on the potential borrower's history, key personnel, and customer demographic.
This type of information provides the small business capital institution with a larger picture, beyond the financial data, of a particular company's future ability to repay. The coffee shop entrepreneur should have some expertise in retail and be able to show research that the shop will be located in an area frequented by coffee drinkers. The toy store chain's management team can include a brief history of the company's long relationship with higher-income parents and grandparents. Also in this section, the management team can include the biographies of key personnel. These bios can list each person's relevant professional experience and expertise. With diligent foresight, both the entrepreneur and the toy store team can prepare a detailed business proposal with all the needed information to impress a small business capital lender. This detailed plan may mean the difference between being approved or disapproved for a loan that will enable the borrower to launch a business, expand a product line, or open new franchises. The Small Business Administration (SBA) is a federal agency that provides assistance to both entrepreneurs and established companies. The lending process is complex, but may be worth the time and trouble for some potential borrowers.
|
|
|
|
