Show Me the Money!
Every small business needs fuel—capital—to run on, including yours. Just where do you find it? Here’s a rundown.
You have the right products, the right location and are ready to launch (or expand) your specialty retail business. But you are not going to get anywhere without capital—both to get the business started and to keep it running.
The economic downturn has had entrepreneurs looking for alternative methods of financing in addition to the tried and tested ones. The new Small Business Jobs Act, passed in September, promises to help. It will provide critical resources to help small businesses continue to drive economic recovery and create jobs. The new law extends the successful U.S. Small Business Administration’s enhanced loan provisions while offering billions more in lending support, tax cuts, and other opportunities for entrepreneurs and small business owners.
Begin with the basics
Creating a business plan is one of the key first steps to starting a specialty retail business. You can find many business plan templates online.
A business plan will help you determine how much capital you will need to start and keep the business running. The loan amount you apply for will depend on these numbers.
Consider consulting a certified accountant or attorney who specializes in tax laws. Advice on how to set up your business—as sole proprietor, LLC, etc.—will be useful at this stage. Each of these entities has different tax and liability implications and will affect your cash flow. Doing your homework and research in the beginning will ensure that the business will not be strapped for cash later.
In addition, you will need to complete a personal financial statement and business financial statement (if applicable). You can find these templates online as well. These forms are required to process loans and some landlords require them too. Landlords want to know that the business has capital and is financially stable. Sometimes, even if you have incorporated your business, the landlord may still require a personal guarantee to the Lease or License Agreement. A personal guarantee is a promise made by an entrepreneur to personally repay the company debts in the event of default by the business.
Where to look for advice
Non-profit associations dedicated to educating entrepreneurs and helping small businesses launch, are great points of contact. The U.S. Small Business Administration website has a wealth of information for small business operators. The finance section of U.S. Small Business Administration’s website at sba.gov/financing, provides details on SBA’s many funding programs. Perhaps you qualify for one.
The Service Corps of Retired Executives is another non-profit association that can help you navigate the financing process. This group is made up of retired entrepreneurs who mentor aspiring businessmen and women. You can find your local chapter by visiting score.org.
Where to look for capital
There are many channels through which you can acquire financing for your small business. Your bank is a great place to start. Meet with a loan officer at the bank you currently have an account(s) with. He or she will be able to advise you if you qualify for any small business loans—and assist with the process. Also check with smaller local banks and credit unions; they tend to be more open and flexible when working with small businesses.
Also research if your state has any small business grants available. Some states offer other small business incentives like subsidized rates on SBA loans, tax breaks and participation in business incubator programs.
Credit card companies also have very enticing offers for small business owners these days. Many of the major credit card companies have dedicated cards just for small business owners. However, these have lower limits and higher rates. If you decided to finance any or all of your business on a credit card be sure to read the fine print of your credit card agreement. There may be great opportunities to earn points or miles, but they could come at a very high interest rate and cost to your bottom line.
Investors and venture capitalists will typically invest in a startup company that has a new and unique product or service with high potential in exchange for equity in the company.
For generations entrepreneurs have been getting loans from friends and family. While this is certainly an option, care must be exercised when going about it. Keep it professional—present your business plan just as you would to any other lender. You should also prepare a personal loan agreement or promissory note with the friend or family member who is loaning you the money. Having the terms executed in writing will be better than having only a verbal agreement in place.
There are also some new and non-traditional ways to raise funds for your new business. Kiva is an organization that helps fund entrepreneurs through microfinance. Microfinance is a process where loans in small amounts are given out routinely without much need for collateral.
Peer-to-peer lending is also a valid option. In this case funding is obtained from individual lenders who are looking for investment opportunities with high returns. The middlemen—the banks—are eliminated in this process. This type of financial lending can be very tricky. Be sure you check with the Better Business Bureau to ensure the company managing the loans is in good standing and research customer feedback responses.
To recap, you will need to prepare a business plan and obtain funding. There are many resources out there to help educate you about the process of starting and operating a small business. Visit your local library, research the Internet, and set up an appointment with your local SCORE or SBA office today. And if you are passionate about your business and products this will all be a labor of love.