Secure Financing
Finding the capital necessary to start a business is perhaps one of the most difficult challenges facing an entrepreneur. There are several sources individuals should consider when searching for financing. The first, personal savings, is the primary source of capital for most new businesses. However, not all individuals have the savings necessary to accomplish what they desire to achieve. Thus, many entrepreneurs look to friends and relatives as an investment source. In many cases, this type of financing can lead to interest-free or low-interest loans. Other financing options include banks, credit unions, and venture capital firms. Banks and credit unions are the most frequently used sources of funding and venture capital firms are similarly interested in helping emerging businesses grow in order to capture equity or partial ownership.
There are several types of loans available, should one desire to take that route. A short-term loan has a maturity of a year or less. Long-term loans are usually longer than a year, but rarely longer than seven years, although some real estate loans have maturities of 25 years. Long-term loans are generally used to finance large business expenditures: land, facilities, major equipment, etc.
Getting a loan is largely dependent upon an entrepreneur’s ability to show that he or she is prepared, that the business plan is well thought out, and that he or she is going to be able to repay the loan. A properly written loan proposal will greatly improve one’s chances of receiving a loan. This can be very similar to a business plan, but should include extensive financial information. Virginia Small Business Resource offers a helpful outline:
General Information: Names of business and principals, purpose of loan, the exact amount being requested
Business Description: Detailed history of business, current employees, and current assets
Management Profile: Biographical information about principals, organizational structure
Market Information: Product definitions, analysis of competition, consumers’ profiles
Financial Information: Financial statements, balance sheets, income statements, collateral, personal financial statements of principals
In addition to loans there are many financial assistance programs available to entrepreneurs interested in doing business in Virginia. Contact the Economic Development Office or visit the links to resources.