Financing a Business

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Training Course: How To Finance a Business

This self-paced training exercise is an introduction to financing options for your business.Topics include; determining your financial needs, loans, grants, venture capital, angel investors, crowd funding and other financial options available to small businesses.

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Text Transcript of The Course

1.3 Course Topics

The topics discussed in this course include:
•     Determining your financing needs
•     Equity vs. debt financing
•     Loans
•     Grants
•     Venture capital
•     Angel investors
•     Savings, retirement, and other investment accounts
•     Crowd funding
•     Peer-to-peer lending
•     Family and friends, and
•     SBA Surety Bond Guarantee Program

Numerous additional resources are identified to assist you. Visit the Resource icon in the course player or locate additional tools, templates, and mentors on SBA.gov after you finish the course.

Let’s get started!

1.4 Background

In spite of having the idea and being good at entrepreneurship, it is often difficult to start up a business venture. The financing needs to be in place. Financing is the key element
for a startup small-business venture. You have to explore different financing options to be able to arrange for the right financing for your business.

1.5 Determining Your Financial Needs

Before you look into the financing options for your business, the first thing you need to do is to assess your current financial situation thoroughly.

Often this means having a solid business plan with five years of financial projections. You should not only know what you need to get started or expand your business, but also know how your revenue stream will look in order to pay back any debt financing. For most financing, knowing or having a plan for the next five years is essential-at least, as
far as revenue, cash flow, growth, and expansion are concerned.

1.6 Questions To Ask

Let’s look at a list of questions that you must ask yourself to determine your financial needs.

Click the button below to learn more about the questions.

Do you need more capital or can you manage within the existing cash flow?

If you have trouble paying your obligations on time, you may need an infusion of working capital.

What is the nature of your need?

You should determine whether you need money to start or expand your business or as a cushion against risk.

How urgent is your need?

Whenever possible, it's better to anticipate your needs rather than have to look for money under pressure. It is harder to gain approval for a loan when your company is already in trouble, so plan ahead and secure financing well in advance of a crisis.

How great are your risks?

All businesses carry risk, and the degree of risk will affect both the cost of your loan and the financing alternatives available to you.

In what state of development is your business?

Needs are generally more critical during transitional stages-startup and expansion being two of the most urgent and costliest stages.

For what purposes will the capital be used?

Lenders will need to know your specific intentions for the money to assure themselves that your business will thrive and that repayment is assured.

What is the state of your industry?

Whether your industry is depressed, stable, or fast-growing will have a distinct effect on your search for funding sources. Businesses that prosper in tough economic times will generally receive better funding terms.

Is your business seasonal or cyclical?

Seasonal needs for funding are generally short-term, and consist of smaller loans with a quicker maturation. Loans advanced for cyclical industries, such as construction, are designed to support a business through depressed periods-these industries are sometimes known as “feast and famine” businesses, as the cash flow is often erratic and unpredictable.

How strong is your management team?

Effective management is an important element of business. Your lender will be looking for a strong managerial presence.

How does your need for financing mesh with your business plan?

If you don't have a business plan yet, make it a priority to write one. All lenders will want to see a solid, well-thought-out business plan for the startup and growth of your business.