SCORE's Top Finance and Capital Tips
5 Tips for Writing a Business Plan for a Loan
- Begin with a statement of purpose. You should be able to explain your business in 25 words or less.
- Tell how your business will work and why it'll be successful. List the owners.
- Fill in the business details. Describe its products or services, the customers, the market and the competition. List the managers and their credentials.
- Supply three years of projected financial statements. Include income, loss, and cash-flow projections.
- Provide supporting documents, such as references from creditors and potential clients and suppliers, evidence of insurance and the like.
5 Tips on Approaching Your Bank
- Understand that your primary responsibility is the proper use of capital and that you're in business to make a profit.
- Test the economics of your product or service. Make sure it's profitable and the gross profit percent is in line with that of the industry.
- Know how you'll finance your business. Visit lenders (banks) prior to seeking financing to gather information. Ask your lenders what they'll want to see before you apply for a loan.
- Develop a personal financial evaluation. Determine your net worth and your annual, personal cash flow needs.
- Develop realistic financial forecasts for income statements, cash flow and balance sheets for three years. Forecast monthly for the first year.
5 Tips on Conserving Capital
- Determine your primary business of units sold, customers sold, average order, hours billed, etc. Know what drives your business.
- Pricing should be determined by the sum of product costs, service costs, image of the business, direct and indirect costs and a reasonable profit.
- Conserve capital. Don't commit cash or capital until necessary. Don't buy services before you need them.
- Lease instead of buy when it makes sense.
- Look for office equipment that can do double duty, for example a fax machine that can also make copies.
5 Tips on Factoring
- Know what the term means. It's a way to turn your accounts receivable into cash by selling them to a finance company called a factor.
- Make sure you understand the fees you'll pay for this service. They typically include the cost of funds and making the collections.
- Balance the cost against the gain. Factoring can be expensive but it may fuel your growth, improve cash flow, or enable you to take advantage of supplier discounts.
- Ask your bank or CPA to recommend factors. Check their references.
- Visit the website of the Commercial Finance Association, and the International Factoring Association for a list of factors. The CIT Groupsite provides information on factoring (click on "Business Financing," then "Commercial Finance," to access the search feature).
5 Tips on Financial Packages
- Understand that loans and venture capital often come in packages--that is, each may have several sources of funds and one piece of financing may depend on another.
- Recognize that even government programs may require several sources. Under the federal 504 loan program, funds might come from a certified development company and one or more banks.
- Expect to come up with some cash yourself. A down payment or demonstration of willingness to risk some of your own capital may be required.
- Be sure you understand what's expected of you. For example, does a government program expect you to employ a certain number of workers within a certain time period?
- Be patient. When more than one financing institution is involved, there's more paperwork, and each institution must give its approval.
5 Tips on Being Creative In the Search for Funding
- Contact your state, county and local development departments. Many offer funding programs to foster business within a certain geographic area.
- Take advantage of organizations aimed at helping you. The National Organization of Women Business Owners offers special funding programs for women entrepreneurs, for example, and the National Minority Supplier Development Council has an arm that works with minority entrepreneurs.
- Call on the community banks in your area. These smaller banks pride themselves on helping small business owners.
- Find out of there are any revolving loan fund (RLF) programs for which you might qualify. They provide "gap financing" that your bank won't or can't offer. Your banker should know of any RLFs available.
- Visit www.sba.gov/financing, the finance section of U.S. Small Business Administration's website. It provides details on SBA's many funding programs. Perhaps you qualify for one.
5 Tips on State and Local Funding
- Don't overlook city, county or state governments when you seek capital. Many economic development offices have funding-assistance programs for qualified small firms.
- Understand the purpose and the requirements of the program you're interested in. It may call for raising matching funds or creating jobs.
- Be modest in making projections. For example, don't inflate the number of jobs you think you can generate in hopes of getting a larger grant.
- Take advantage of "in kind" credits. Like cash, these can be used as matching funds. In one case, a state program counted a company's $200,000 local property tax abatement as part of the matching requirement.
- Remember that having a good business plan and strong management team in place will help you make your case.
5 Tips on Vendor Financing
- Know that vendors can sometimes play a significant role in financing a new business. Partners in one startup persuaded vendors to give them net-30 terms in order to stock a retail store. They made enough money to pay the vendors back in 30 days.
- If you need financing for equipment or supplies, ask your suppliers first. They may be willing to work out an arrangement with you to keep you as a customer.
- If you haven't established vendor relationships, shop around. Your trade association may be able to point you to suppliers that offer financing.
- Check the vendor's credentials and reputation before you sign an agreement. Look for stability.
- Keep in mind that a number of major suppliers own financial companies that can help you, such as GE Small Business Solutions and IBM Global Financing.
Brought to you by SCORE, "Counselors to America's Small Business."