Finance

In many instances outside funding will be required depending on the nature of the business. For example, expensive equipment or initial stock may be required. When determining our financing needs, nearly everyone underestimates what is required. And of course, we don't forget to factor in contingency ...sickness, bad weather, equipment breakdown, etc. Anything that increases the time line to profits! Best we figure on a year before we start.

• Office equipment (Fax machine, computer, printers)
• Production equipment (if you will be manufacturing)
• Office or production furniture
• Office supplies
• Legal and CPA fees
• Insurance
• Business licenses or permits
• Lease deposits
• Remodeling costs
• Utility deposits (this can be quite large!)
• Salaries
• Shipping
• Advertising and promotion
• and the big one ... contingency!

The fact is, 99.99% of all small businesses will utilize debt financing since most "equity lenders" (venture capital companies) are interested in lending large amounts of money, generally a million dollars or more. We will only consider sources for obtaining debt financing for our venture.

SOURCES FOR DEBT FINANCING

1. OURSELVES! (Savings) We are our own best "lender" if we have the savings. This approach can be quick and easy.
   
   
2. FRIENDS and RELATIVES. If they believe in us and our idea, friends and relatives are sometime willing to fund us. We choose this route with care and ensuring we execute a formal loan document stating loan terms (interest, terms of repayment).
   
   
3. BANKS and CREDIT UNIONS. Many banks and credit unions will loan money for starting a small business. This approach will require that we present a formal plan to the bank showing justification for the amount we are borrowing.
   
   
4. VENDOR FINANCING. If our business is one that relies heavily on certain vendors, it may be possible to obtain financing through the vendor. After all, they want us to use their product and therefore have an interest in helping us be successful.
   
   
5. STATE. Some states have small business financing authorities that issue tax-exempt development bonds that be used to finance land, buildings and equipment for manufacturing businesses. We will have to check with our local government office for details.
   
   
6. HOME EQUITY LOAN. Interest rates for this kind of loan are generally quite low and the interest is fully deductible for the first Rs. 500,000 borrowed.

    

7. LIFE INSURANCE. Some type of life insurance policies (whole life and universal) have cash value which can be borrowed at very low interest rates.

A FINAL NOTE: Many of these loan ideas will require us to sign a personal guarantee. This means that regardless of what happens to our business, We are personally liable for the repayment of the loan amount...