Ins and Outs of Acquiring Business Financing

Copyright © 2005 Ciere Hoyt
Financing REX, Inc.

As any entrepreneur will tell you, growing a business takes blood, sweat and tears -- but even those aren't enough if you don't have capital. Fortunately, there are a lot of financing options available to business owners. It can be overwhelming to research and navigate those options, so let this serve as a kind of introduction to help get you started making -- or at least borrowing -- the big bucks.

The Loan Proposal

First impressions are important to the success of your business, as well as the success of your loan application. Oftentimes, a lending institution will only allow you to submit one loan proposal and application, so make it count. Carefully prepare your proposal letter, being sure to include all relevant information as clearly as possible. Your proposal should include: an introduction of yourself and your business, how much financing you need, how the financing will be used by your business, your requested terms for repayment, and how you will repay the loan. Include any industry-specific details that will enhance your reader's understanding of your business, but keep your proposal as concise as possible. And, whatever you do, proofread carefully. Don't give your reader a reason to doubt your professionalism.

SBA Loans and Programs

The Small Business Association can operate as a guarantor of loans, and offers a number of programs to help business owners obtain the financing they need. One valuable service is their loan prequalification program. The SBA will review your loan application and, if necessary, help you strengthen it before you submit it to your lending institution. They may also be able to sanction it, giving it their seal of approval, which can only help you through the application process.

The SBA's primary business loan program is the Basic 7(a) Loan Guaranty. It helps small businesses that might not be able to secure financing through normal lending channels. Financing can be used for a variety of general purposes, and loan maturity is generally up to 10 years for working capital and up to 25 years for fixed assets. Other loans include the Certified Development Company (CDC), a 504 Loan Program that provides long-term, fixed-rate financing to businesses, and the Microloan 7(m) Program, which offers short-term loans of up to $35,000 to small businesses and non-profit child care organizations.

Equity Financing

Equity financing is money obtained by a business in exchange for a share of ownership in the company. Young businesses might receive equity financing from either angel investors or venture capitalists. Both will typically provide unsecured funds to help grow a business, and accept the higher risks involved in hopes that the business will provide them a higher rate of return (ROI) than other, more traditional investments. Because angel investors and venture capitalists are typically successful business owners themselves, they often require an active role in the business, or at least a seat on its board of directors. It's important to remember that savvy investors will have an exit strategy from day one. If your business doesn't perform to their expectations, they will cut their losses.

Good luck!

Hopefully, this brief introduction to major funding sources will prove helpful for you. Again, there are a number of detailed resources available, both online and at various lending institutions. Thorough research and preparation will undoubtedly help your capital campaign, and your business, succeed.

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By Ciere Hoyt - owner and operator of Financing REX, Inc., where you can find more of his articles or become informed about more financing insights.
Visit: http://www.financingrex.com

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