Opinion: Money slowing your business potential? Write a financial plan

Ask any entrepreneur, actual or potential, what the biggest holdup to launching or growing a business is, and the answer will come quick and sure: money.

There is little doubt that finding capital to finance your business venture is the most basic and important of all your business activities.

It also can be the most frustrating one if you don’t know where and how to look.

Finding capital can be a smooth, rewarding experience, provided you study diligently and plan effectively.

However obvious it may seem, the first thing you need to know before setting out in search of money is how much you need.

Here again, a thorough business plan will be critical in determining your financial needs.

Financing resources

Once you have determined how much money you need, there are several sources to consider when looking for financing. It is important to explore all of your options before making a decision.

• Personal savings: The primary source of capital for most new businesses comes from savings and other personal resources.

While credit cards are often used to finance business needs, there are usually better and less expensive options available, even for very small loans.

• Friends and relatives: Many entrepreneurs look to private sources such as friends and family when starting out in a business venture. Often, money is loaned interest-free or at a low interest rate, which can be beneficial when getting started.

• Banks and credit unions: The most common sources of funding – banks and credit unions – will provide a loan if you can show that your business plan is sound.

• Angel investors and venture capital firms: These individuals and firms help expanding companies grow in exchange for equity or partial ownership.

Good credit risk

Borrowing money from a bank or other financial institution to start a business – and even for established small businesses – is usually seen as difficult.

Inexperienced or ill-prepared borrowers do not make matters any easier by submitting incomplete or poorly completed loan applications or by showing up without a business plan, prompting lenders to assume that you may be high risk.

To improve your chances of obtaining a loan, you must be prepared and organized. You must know exactly how much money you need, why you need it and how you will pay it back.

You must be able to convince your lender that you are a good credit risk.

Approval of your loan request depends on how well you present yourself, your business and your financial needs. Remember, lenders want to make loans, but they must make loans they know will be repaid.

Preparation

The best way to improve your chances of obtaining a loan is to prepare a written proposal. In addition to general information – business name, names of principals, Social Security number for each principal, business address, purpose of the loan and amount required – a well-written loan proposal should contain the main elements of your business plan: business description, management profile, market information and financial information.

The SBA, through its district offices and resource partners, can help you prepare a sound loan application that will enhance your chances of getting the funds you need. And if at first you are turned down by a lender, ask about an SBA 7(a) loan guaranty.

Often, there’s very little additional paperwork, and a guaranty can often be approved within a couple of days.

For more information on how the SBA can help you find the money you need for your business, visit its Web site at www.sba.gov.

Sam Jones is the Region VII SBA Administrator, serving Missouri, Kansas, Iowa and Nebraska.