Thursday, August 26, 2010

Financial Resources For Small Businesses

In several of my engagements, I have helped Entrepreneurs secure financing for their business.  Every business needs a certain amount of money to start. The success of a small business depends on the funding it is able to arrange to ensure a smooth cash flow. Different Business Life Cycle Stages will help determine the type of financing available and timing of receiving the financing.   

These life cycle stages are:
  • Startup:  You develop the business model and infrastructure and start early operations.
  • Growth: Generally a business has an initial time of negative profit until it breaks even and begins to show increased revenues that allow it to grow.
  • Expansion:  This is the point at which a business gets to the point where there is sufficient revenue being brought in so that there are no doubts of its survival and it can expand its horizons.
  • Mature: The business is now stable enough to survive most unforeseen circumstances. It has enough backing, capital and support to ensure that even if the market becomes unstable, it can pull through.
While many small businesses may choose to get funding in the early stages to start the business, many need access to financial resources even for a running business especially with those that have seasonal patterns. Finding adequate funding for small ventures can be tough and time consuming. Often entrepreneurs end up utilizing their entire savings to keep the business afloat until other financing is available.

These are some of the financing options available:
  • Self financing
  • Bank Loan
  • Friends and Family Loans
  • Cash Advance
  • Equipment Financing
  • Unsecured Loan
  • Accounts Receivable Factoring
  • Line of Credit
  • Home Equity Lines
  • Credit Cards
  • Inventory Loan
  • Vendor Financing
  • Working Capital Loan
  • Franchise Loan
  • Grants
  • Equity Investment

Several of these options are more appropriate and easier to secure in the later life cycle stages.  Small business financing come at a price and also increase the element of risk involved. However, financing becomes necessary to ensure cash flow, purchase assets like property, expansion of business, equipment or inventory purchase, or simply to have adequate working capital.   Utilizing financing makes sense versus using up all of your personal assets and resources.  But getting a small business financing approved requires that the owner/borrower is able to provide the following:
  • A sound business plan
  • Personal profile with qualifications and experience
  • Personal financial status statement
  • Credit rating of the business if already in operation, or credit history
  • Track record of taxes paid in previous years
  • Collateral that can be used to secure the loan
Subsequent Blogs will expand on each of these options and points.
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