The fourth step according to the Small Business Administration is getting financing for your business. This step, however seems to be the biggest challenge for most entrepreneurs and the hesitation or fear of getting through this step will certainly bring any venture to a halt.Truth is, every business needs money to make money so financing is a must. Much advice and research is needed prior to launching any business, so the proper homework is needed in order to obtain a source of capital. The first question that needs to be asked is what is the money for?
Your written business plan should give a rough idea as to what exactly is needed. Are you trying to raise capital for costs of starting, or just to cushion against the risk of failure? Are you looking ahead for needs expected in six months, one year, or three years down the road? Most sources indicate that planning for expenses ahead of time is much more effective than trying to find money while under pressure.
The obvious expenses occur after planning step three (posted September 26th) looking at overhead, and cost of operation. Is money needed for property, inventory, or employees? Is there a need to borrow for innovation, research, or expansion? Is your business seasonal or cyclical? What about the strength of the business? Are you planning to open a franchise, or nation-wide chain? How is the competition factor? Will the guy down the road force you to close your door early? All of these factors and more lead to the type of financing an entrepreneur will need.
Basically, there are two types of financing; equity financing and debt financing. Both are useful for different applications and both will serve a business's needs is used correctly. Here is where research is needed. Try going to a bank and request a loan or a venture capitalist without a plan and you will certainly be rejected.
