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SMALL BUSINESS FINANCING & FUNDING
Applying for small business financing and obtaining small business funding
Obtaining small business financing or small business funding is an essential part of launching a new business or
expanding an existing company. The process of applying and gaining approval for
small business financing, however, can be a daunting process. In fact, lengthy
applications and cumbersome approval processes often deter many small businesses
from even applying for financing or funding.
Before you apply, be sure that you have considered whether or not this is the
right step for your business. While additional funds may help your business
grow, they will also increase your debt and eat into your company's profits.
Talk about your need for business financing with an advisor before you proceed.
If you do determine that your business needs financing, here are seven tips you
can use to improve your chances of getting approved:
How to succeed at getting business financing or funding
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Determine what type of financing you need. Lenders can assist you by providing
funds through different types of business loans. In general, types of business
loans include term loans and revolving lines of credit. In addition to these
traditional forms of debt financing, you may want to investigate whether equity
financing, also known as venture capital, is a viable option for your business's
capital needs. Become knowledgeable about these types of credit products and
choose which one is right for you. For more information on different types of
loan products, contact your local lender or visit the SBA's Web site.
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Prepare a business proposal. A well-thought-out and detailed business proposal
is one of the most important items you can bring to a lender or investor. The
proposal should include a description of your business, the amount of funds
requested, the purpose of the funds and the amount that you will contribute. The
proposal should also include a description of collateral and the sources of
repayment. This proposal will serve as the basis for your financing application.
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Have a third party review your proposal.
Before you meet with a lender or
investor, you may want to have an experienced evaluator review your business
proposal, especially if you are a start-up or a first-time borrower. By doing
this, you will be strengthening your application, making it easier for the
lender or investor to reach a favorable credit decision. There are several
business support groups whose members could counsel you on how your proposal
looks. One source of counseling available to small businesses is the Service
Corps of Retired Executives (SCORE), which is sponsored by the SBA. Other
counselors might include accountants, financial advisers or experienced
entrepreneurs in your line of business.
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View your credit report.
A borrower's credit history will provide a lender or
investor with important information concerning your ability to meet your
commitments. Be sure that you are aware of what is in your credit report in
advance of your meeting with a prospective lender or investor. This way, you can
correct any errors or prepare explanations for any anomalies before they ask you
about them.
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Locate a lender or investor.
Shopping around for a lender or investor is an
important process. At your disposal are banks, credit unions, specialized
commercial lenders and venture capital companies. In addition, you may want to
consider lenders that participate in the SBA's 7(a) loan program or a venture
capital company participating in the SBA's Small Business Investment Company (SBIC)
program. If you are having difficulty securing financing, institutions
participating in SBA's programs may be willing to work with you.
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Character counts. When evaluating your application, lenders or investors will of
course look at your business proposal, your financial condition and projections,
and your credit report. However, they will also pay attention to your character.
As a result, be sure to present yourself and your business well--be
professional, organized and confident.
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If you are not approved, get feedback.
If your application is not approved, ask
the lender or investor to provide you with the reasons why. Some of the reasons
they may give for denying financing include: insufficient owner's equity in the
business, a lack of established earnings record, a history of slow or past-due
loan or credit card payments, or insufficient collateral. Make sure you find out
the reasons why you were turned down, as this information will help you qualify
the next time you apply.
After only four terms in the U.S. House of Representatives, Congresswoman Nydia
M. Velázquez (D-NY) was named Ranking Democratic Member of the House Small
Business Committee by her colleagues in February 1998, making her the first
Hispanic woman to serve as chair or Ranking Member of a full committee in the
history of the House. She has been a vocal advocate of American entrepreneurship
and has established numerous small-business legislative priorities, encompassing
tax regulations, access to capital, federal contracting opportunities, trade,
technology, health care and pension reform, among others.
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