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A
leading cause of small business failure is inadequate
start-up capital. Before you begin your new venture,
you must realistically project not only your start-up
costs for such things as equipment, renovations, and
promotion, but also your cash flow requirements for
the early stages of operation. It often takes time to
build sales levels, yet rent, utilities and other
costs are immediate. During this time, bills are
arriving faster than the customers, cash reserves can
help the business survive. Funding needed for start-up
and operation of a business is available in two forms:
(1) debt capital - borrowed funds; and (2) equity
capital - funds generated through the sale of stock,
or by the investment of the owner.
The
terms on repayment of debt capital vary and are
negotiated between lender and borrower. Raising
capital through the sale of stock is complex and
highly regulated; you should seek legal advice. More
than half of all businesses are started with capital
invested by the owner or the owner’s family. Should
you decide that your own resources are insufficient,
the traditional sources of financing are: banks,
local, state and federal agencies, and venture capital
firms.
There
are many resources available in Central Pennsylvania
to help you start your business.
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Click here to view a listing of banks registered
on our site.
-
Click here to see a
summary of public loans.
- To speak with
someone directly about loans for your business, call
our toll-free number at 1-866-412-GROW.
In
many cases the most fundamental document you will need
for a loan application is a business plan, because it
shows the lender your ability to research and envision
the establishment and operation of the firm. In the
previous section of this guide, the business plan
outline contains several items marked with an asterisk
(*). These items are particular additions for a
business plan being used with a loan application. In
addition to the plan, lenders consider several factors
in evaluating a business loan:
- Management
Experience: your background compared to the skills
required for your chosen business.
- Repayment Ability:
your realistic projection of business income allows
you to maintain loan payments.
- Collateral: your
pledge of assets toward business stability and loan
repayment.
- Credit: your
historic and current record of repayment of
obligations
Obtaining a loan
requires preparation and credit worthiness, but a bit
of sales ability can help. You will be competing with
many other business owners, and knowing what the
lender needs when requesting a loan is just as
important as knowing what a customer needs when
selling your product. Many lenders want assurance
that:
- You have something
at risk in starting and operating this business. (Do
not ask them to go out on a limb to back you if you
are not out on the limb yourself. You must have
resources committed to your own venture to secure
the support of others.)
- Your proposal is a
sound one based on the 5 C’s of credit: capacity,
capital, collateral, character, and condition
(industry).
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