Financing a business is always an important decision, and one subject to many myths and misunderstandings. Many people think that grants and venture capitalists are flowing like rivers. The truth is, while grants for starting a business do exist for some specialized categories, they are hard to get and there are relatively few of them. And while there are venture capitalists out there who will invest in an idea, they are very particular and usually want a large percentage of the new business venture for putting their money at risk.

The most likely place to acquire business capital is through a loan. The easiest loans to get, and those with the lowest interest are those secured by real estate or some other property you may own. If you have a lot of equity in your home, consider refinancing it to raise the money you need. If you own other property of some sort, you have collateral for a loan, and may have good luck with a local banker you know and who knows you.

If you have money invested in a 401K or IRA retirement account, that can be used as collateral for a business loan. The downside is that you are putting your retirement savings at risk, and usually only about 50% if the value can be borrowed due to early withdrawal penalties if the loan had to be called.

Other possibilities are the Small Business Administration, or SBA wing of the federal government. They rarely make loans themselves, but if convinced that you have a reasonable chance of success they will guarantee a loan with a local lending institution. As a general rule, they will want to see a business plan and financial statement and be assured that you have a chance of success.

If buying an existing business, they will probably want to see that you have 20% of the purchase price in your own money. Part of their reasoning is that if you have $20,000 invested in a $100,000 business and the business has problems, you have a large enough investment to work hard for success and not just walk away.

Some lenders specialize in loans for entrepreneurs who can’t quite make the grade with the SBA or the local bank. They charge higher rates of interest, but are more willing to make the loan. If buying a franchised business, many franchisors have their own financing plans. They are willing to risk money because they have a strong success rate, and they very carefully scrutinize the applicants.

One national radio talk show host often says that when needing business capital the best source is people who love you. Relatives, friends and others who know you and believe in you are often the best source of capital.

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Investors in your business are a dream many entrepreneurs wish for. Added capital from investment allows business growth, invigorated marketing efforts, new employees, new facilities and expansion. What exactly are potential investors looking for in your business?

Investors are looking for a way to make a profit from their money. A way for their money to make more money. In looking at your business as a potential investment vehicles investors are looking for a way to increase your profit, so that they can have a fair share of it as a return on their investment.
In looking at your business they want to see stability. A strong management team with good employees and little or no turnover.

They want to know that key employees will stay for the long haul, and they want to know how future personnel problems will be handled when they arise. An employee handbook, also known as a policies and procedures manual is a great tool to showcase this positive aspect of your business. If your company doesn’t have one, then this is a great investment for you to make in your company’s future.

These potential cash angels also want to know how their investment capital would be used. What would you spend the money on, and how would it benefit the business and make it more profitable. For this it is wise to have a strategic business plan prepared, outlining future growth, and how it would benefit the company.

A part of the strategic business plan should be the marketing plan. The marketing plan is a roadmap to increased profits through marketing communications such as advertising, promotions and public relations, and the ways in which these efforts will increase sales of your company’s products or services.

The investors will also want to know about the big picture. Where does your company fit in the overall market? This can be locally, regionally or nationally, depending on how far our business reaches out to gather customers. This should include anticipated future trends in the marketplace, and your competition.

Emphasis in the plans your strengths, and ways in which you can capture sections of the market that the competition can’t, and that you are not yet reaching.

Investors interested in your business is a sincere complement to you as a business builder, but don’t expect them to understand the business as you do. Take the time and effort to show them, on paper, how you and your business can help them help themselves.

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Part of a being an adult is adequately managing your finances and this is especially true for business owners. Unlike the federal government, individuals and businesses live on budgets and need to stick to them to avoid unpleasant situations like bankruptcy. A few basic rules to follow are:

1. Live below your means. If you make $100,000 a year, live as though you made $50,000. Don’t build up unnecessary debt. A business owner needs to be ready to handle unexpected emergencies, and that is easier to do if you are fast and maneuverable, with little debt.

2. If you have debt, pay it off as quickly as possible.

3. Build up an emergency cash fund. Try to set aside enough cash for you to live and the business to operate for a minimum of three months, and six months is much better.

4. Take advantage of legal tax loopholes. If you can save money by leasing a vehicle rather than purchasing one, then lease. If the opposite is true, then purchase. Do what saves you the most money, paying particular attention to taxes.

5. Pay credit cards off in full at the end of each month. Credit card interest is high and cash eat you alive if you allow it.

6. Take advantage of pre-pay discounts. For instance, if you advertise in the newspaper and they offer a ten percent discount for prepaying a year’s worth of advertising, realize that ten percent is better interest than the bank would pay you and pay for a year in advance to get the discount.

7. Buy office supplies and other consumables in bulk. You’ll save five to ten percent on the total.

8. If you fly for business, save frequent flier miles and use them later for free airline tickets, for items you can give to the sales staff as motivational tools and contest prizes, or give them to charity organizations for the tax write off.

9. And finally, think lean. Remember that Sam Walton, the richest man in America, drove a ten-year-old pick up truck when he could afford the nicest Rolls Royce. Think lean, be frugal, and be successful.

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