Seven Startup Funding Tips

Ready to launch or expand your business? Use these steps to determine if now is a good time to get financing.

Obtaining financing is an essential part of launching a newbusiness or expanding an existing company. The process of applyingand gaining approval for business financing, however, can be adaunting process. In fact, lengthy applications and cumbersomeapproval processes often deter many businesses from evenapplying.

Before you apply, be sure that you have considered whether ornot this is the right step for your business. While additionalfunds may help your business grow, they will also increase yourdebt and eat into your company's profits. Talk about your needfor business financing with an advisor before you proceed.

If you do determine that your business needs financing, here areseven tips you can use to improve your chances of gettingapproved:

  1. Determine what type of financing you need. Lenders canassist you by providing funds through different types of businessloans. In general, types of business loans include term loans andrevolving lines of credit. In addition to these traditional formsof debt financing, you may want to investigate whether equityfinancing, also known as venture capital, is a viable option foryour business's capital needs. Become knowledgeable about thesetypes of credit products and choose which one is right for you. Formore information on different types of loan products, contact yourlocal lender or visit the SBA's Web site.
  2. Prepare a business proposal. A well-thought-out anddetailed business proposal is one of the most important items youcan bring to a lender or investor. The proposal should include adescription of your business, the amount of funds requested, thepurpose of the funds and the amount that you will contribute. Theproposal should also include a description of collateral and thesources of repayment. This proposal will serve as the basis foryour financing application.
  3. Have a third party review your proposal. Before you meetwith a lender or investor, you may want to have an experiencedevaluator review your business proposal, especially if you are astart-up or a first-time borrower. By doing this, you will bestrengthening your application, making it easier for the lender orinvestor to reach a favorable credit decision. There are severalbusiness support groups whose members could counsel you on how yourproposal looks. One source of counseling available to smallbusinesses is the Service Corps of Retired Executives (SCORE),which is sponsored by the SBA. Other counselors might includeaccountants, financial advisers or more experienced entrepreneursin your line of business.
  4. View your credit report. A borrower's credit historywill provide a lender or investor with important informationconcerning your ability to meet your commitments. Be sure that youare aware of what is in your credit report in advance of yourmeeting with a prospective lender or investor. This way, you cancorrect any errors or prepare explanations for any anomalies beforethey ask you about them.
  5. Locate a lender or investor. Shopping around for alender or investor is an important process. At your disposal arebanks, credit unions, specialized commercial lenders and venturecapital companies. In addition, you may want to consider lendersthat participate in the SBA's 7(a) loan program or a venturecapital company participating in the SBA's Small BusinessInvestment Company (SBIC) program. If you are having difficultysecuring financing, institutions participating in SBA'sprograms may be willing to work with you.
  6. Character counts. When evaluating your application,lenders or investors will of course look at your business proposal,your financial condition and projections, and your credit report.However, they will also pay attention to your character. As aresult, be sure to present yourself and your business well--beprofessional, organized and confident.
  7. If you are not approved, get feedback. If yourapplication is not approved, ask the lender or investor to provideyou with the reasons why. Some of the reasons they may give fordenying financing include: insufficient owner's equity in thebusiness, a lack of established earnings record, a history of slowor past-due loan or credit card payments, or insufficientcollateral. Make sure you find out the reasons why you were turneddown, as this information will help you qualify the next time youapply.

After only four terms in the U.S. House of Representatives,Congresswoman Nydia M. Velázquez (D-NY) was named RankingDemocratic Member of the House Small Business Committee by hercolleagues in February 1998, making her the first Hispanic woman toserve as chair or Ranking Member of a full committee in the historyof the House. She has been a vocal advocate of Americanentrepreneurship and has established numerous small-businesslegislative priorities, encompassing tax regulations, access tocapital, federal contracting opportunities, trade, technology,health care and pension reform, among others.

The opinions expressed in this column are those of the author,not of All answers are intended to be general innature, without regard to specific geographical areas orcircumstances, and should only be relied upon after consulting anappropriate expert, such as an attorney or accountant.

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