Guide to Starting and Operating a Small Business | 2018 Guide to Starting and Operating a Small Business - Page 12

Sources of Financing / Startup Resources Once you know the cost to start your business, there are resource and finance issues to consider: How much do you need to start and what are the resources? Your savings? Selling your car? Asking your friends or family? Other more common forms of personal financial resources are: • Home Equity • Cash Value of Life Insurance • Credit Cards • RetirementPlans • Keeping your day job or working part time as you build your business Grants Are you hoping for a grant? We’ve all seen the infomercials, advertising, or websites telling us there is “millions in free money.” The myth of “free money” has been around for decades, and clever scammers often extract a hefty fee without delivering anything that provides you with the results you sought. There are federal and state government grant programs but generally speaking, grant funding does not go directly to businesses or individuals. Virtually all state or federal grant money flows to local governments, state agencies, and non-profits with highly restrictive eligibility requirements and do so to support regional or community programs. “SBA does NOT provide grants for starting and expanding a business.” If you still want to look for grants, you can search at: www.grants.gov The following is excerpted from www.sba.gov/loans-grants/see-what-sba-offers/what-sba-doesnt-offer “SBA does NOT provide grants for starting and expanding a business. Government grants are funded by your tax dollars and, therefore, require very stringent compliance and reporting measures to ensure the money is well spent. As you can imagine, grants are not given away indiscriminately. Some business grants are available through state and local programs, nonprofit organizations and other groups. These grants are not necessarily free money, and usually require the recipient to match funds or combine the grant with other forms of financing such as aloan.” Loans Traditional and non-traditional lenders have criteria on which they qualify or reject business loan requests. The following are key lender considerations: Character. What is your credit history and score? Lenders are looking for reliable borrowers who have demonstrated responsibility and have a high credit score (typically 700 and above) over a period of at least 3-5 years. Cash. Lenders expect you to have “skin in the game” and be able to put up 20-30% of the total startup cost either as cash or cash plus equity investment. Collateral. Lenders generally expect you to pledge assets against the loan that have a net value greater than the loan amount. Keep in mind that purchase value isn’t resale value and banks may discount the value of brand new equipment to what they think they could get if they have to sell it to satisfy the debt. SBA Loans. The SBA does not directly make loans but does have a variety of loan guarantee and/or support programs available through commercial lenders and Certified Development Financial Institutions (CDFI’s). For more information visit: www.sba.gov. 10