Small Business funding guide - Zip Capital Group · Zip Capital Group Guide to Small Business...

Learnaboutthedifferentsourcesoffundingthathavebeenusedtofinancesmallbusinessesandwhichonecouldbebestforyou.

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TheZipCapitalGroupGuidetoSmallBusinessFundingSources

TheZipCapitalGroupGuidetoSourcesofFundingforSmallBusiness 2

TableofContentsExecutiveSummary…………………………………………………………………………………………………………………4LearningObjectives…………………………………………………………………………………………………………………4DeterminingFinancingNeeds………………………………………………………………………......................................4 TypesofFunding……………………………………………………………………………………………………………………..5PersonalFundingSources………………………………………………………………………………………………………..5YourOwnAssets……………………………………………………………………………………………………………………..6SalesandIncome…………………………………………………………………………………………………………………….6CreditCards….………………………………………………………………………………………………………………………..6FriendsandFamily…………………………………………………………………………………………………………………7Alternative……………………………………………………………………………………………………………………………..7Crowdfunding………………………………………………………………………………………………………………………...8Peer-to-peerLending……………………………………………………………………………………………………………...8AngelInvestors……………………………………………………………………………………………………………………….9VendorFinance……………………………………………………………………………………………………………………….9PrepayFinance…………………………………………………………………………………………………………………….10Institutional………………………………………………………………………………………………….................................10Banks…………………………………………………………………………………………………………………………………..10WorkingCapitalLending……………………………………………………………………………………………………...11UnsecuredLoans………………………………………………………………………………………………………………….11SmallBusinessLoans…………………………………………………………………………………………………………...11MinorityBusinessLoan.……………………………………………………………………………………………………….12

ZipCapitalGroupGuidetoSmallBusinessFundingSources 3

GovernmentLoans……………………………………………………………………………………………………………..12FederalGrantsforSmallBusiness……………………………………………………………………………………….12StateGrants………………………………………………………………………………………………………………………..13Equityvs.Debt……………………………………………………………………………………………………………………13ThingstoConsider……………………………………………………………………………………………………………...15Sources………………..……………………………………………………………………………………………………………...16


ExecutiveSummaryTogrowandprosper,abusinessneedsacommittedowner,aviableproductorservice,a strongstrategy and business concept, and capital to fund growth. Using your ownmoney to fund andgrowabusinessmayseemliketheeasiestwaytogetwhereyouneedtogo,butitisnotnecessarilythebest.Tofundyourbusiness,youmayneedtoborrowmoneyfromfriendsandfamily,yourcreditcard,abank,orothersources.Eachoptionhasitsownadvantageanddisadvantages.Everyformoffundingcanbebrokendownintotwocategories,debtfinancingandequityfinancing.Debtfinancingisborrowingmoneywithoutgivingupanyownershipofyourcompany,orrighttofuturecashflows.Equityfinancingessentiallyreferstothesaleofownershipinteresttoraisefundsforbusinesspurposes.Thisoptiondoesentailgivingupaclaimtofuturecashflows.Eachoptiondoescomewithitsownsetofadvantagesanddisadvantagesthatcanbeappliedonacase-by-casebasis.This small business finance guide describes the most common sources of capital, the rules andrequirements to apply, and the ideal scenario for each. This guide also includes a detailedcomparisonbetweendebtandequity financingandseveral factors thatabusinessowner shouldconsidertohelpthemdeterminethebestsourceoffundingfortheirbusiness.LearningObjectivesWhenyoufinishreadingthisdocument,youshouldbeableto:

• Identifythedifferenttypesoffundingavailable• Understandthedifferencesbetweendebtandequityfinancing,and• Haveabetterideaofwhichfinancingoptionisbestforyouandyourbusiness.

DeterminingFinancingNeedsYouhavefinallydecidedthat it istimetotaketheleapandopenyourbusiness. Whatdoyoudonow?Oneofthefirststepsistodeterminehowmuchmoneyyouwillneedtostartyourbusiness.Somebusinesses can be started with minimal upfront capital, while others require a substantialinvestment.Whenrunningyourbusiness,youwillalsoneedtokeepyourhouseholdgoing.Shouldyouincludethatnumberinyourcostsorkeepitout?Todeterminehowmuchyouwillneed:


Whatareyourstart-upcosts?Thinkabout:

• One-timecharges–Thesearecostsyouwillonlypayonce.Examplesincludeincorporationcostsandlegalcosts.

• Recurringcosts–Breakdownrecurringcostsintofixedcostsandvariablecosts.Fixedcostsarecoststhatdon’tchangeregardlessifyousellanythingornot.Examplesincluderent,utilities,payrollandinsurance.Variablecostsarecoststhatareincurredasyousellormanufactureyourproducts.Examplesincludeinventory,shippingandsalescommissions.

• Hiddencosts–Thesearecoststhatdidnotanticipate.Add10%toyourbudgettocoversuchsurprises.

Whatisyourpersonalequity?Oneofthefirstquestionsafinancialinstitutionwillaskishowmuchequitywillyoubringtothetable.Whatareyourmonthlyexpenses?Itisimportanttoestimateyourmonthlyexpensesasaccuratelyaspossiblethroughmonthlycashflowprojections.TypesofFundingYou, the business owner have several options to choose from when selecting how to fund theoperationsandgrowthofyourbusiness. Themostcommonformsof financingarebrokendownintomajorcategories.Thesecategoriesare:

1. Personalsourcesoffunding2. Alternativesourcesoffunding3. Institutionalsourcesoffunding,and4. Governmentsourcesoffunding

Themostcommonformsoffinancingbrokendownbycategoryinclude:PERSONALPersonalfundingsourcesforabusinessarethosesourcesyouhaveavailabletoyouthroughyourassets,relationshipsandnetworks.


YourOwnAssetsFunding your business using your own assets is the best financial position to put yourself into.With this option, you don’t take on any additional debt and you keep 100% of the profits foryourself.With this option, you also own of the equity in the business,meaning you keep 100%of futureprofitsforyourself. Ifyousellyourbusiness,100%oftheproceedsfromthesalegotoyou. Youdon’tshareanythingwithanybodyelse.Bynotborrowinganymoneytofundyourbusiness,youdon’thavetorepayanyone.Therearenointerestpaymentsthatwillaccrueorhavetobepaidtoanybodyelse.Ifyouhavejointly-ownedaccounts,makesureyouhavetheotherowner’sconsentbeforemakinglargepurchases,decisionsorwithdrawals.Sinceyoudon’tshareanyoftheprofits,futureprofitsorequitywithanybodyelse,youalsodon’tshareanyofthelossesaswell.Youown100%ofthelosses.SaleandIncomeIfyoualreadyhaveclientslinedupbeforeyouopenyourbusiness,anothergreatwaytofundyourbusiness is to use customer sales revenue. You get all of the benefits of using your own assetswithoutdepletingyourbankaccount.Usingsalesandincomefromfutureclients,youdon’tgiveupequityandtakeonadditionaldebtandyouwon’thavealoantopaybackorinteresttoaccrue.Growthmaybeslowerthanifyouuseyourownassetsbutyoudon’thavetoworryaboutpayingbackaloan.It is very important thatwhen using thismethod of financing your business, you can absolutelydeliveraccordingtoyourclient’sexpectations. Ifnot,youmay findyourselfnotonly in financialtroublebutlegaltroubleaswell.Yourclient’smayaccuseyouoffraud.Ifthisisthecase,youmayputyourselfinthepositionofdefendingyourselfagainstcriminalcharges.CreditCardsFundingyourbusinesswithyourcreditcardsisariskypropositionthatcangetoutofhandquickly.Financialexpertswarnagainstusingcreditcardsbecauseofhighinterestratesandtherisktoyourpersonalcredit.


For many, use of a credit card may be a more viable option than a traditional bank loan. Anexamplewouldbetouseacreditcardtocovershort-termcashproblemswhentheincomeisgoingtobecominginshortly.Ifyoumustuseyourcreditcard,itishighlyrecommendedtodosowhenyoucanpayoffyourcardeachmonth.Ifyoucan’tpayoffyourcreditcardbillmonthly,interestchargesarelikelytoescalatequickly.Additionally,youcangetstuckwithadditionalchargesandlatefeesifyouarenotabletomakeyourmonthlypaymentontime.For short-term cash problems, a working capital loan would be a much better option. Theapplicationprocesscantakeuptoafewhoursandcanbecompletedinanafternoon.Adecisionisnormallyrenderedanywhere froma fewminutes toadaywith the funded toyourbankaccountwithin24to48hours.ZipCapitalGroup specializes inworking capital loans and ishappy tohelpyouwithyour short-termfundingneedsFriendsandFamilyBorrowing from familymembersmay at first glance seem like a goodoption. However,many arelationshiphasbeendestroyedbetween friends and family. As a result, youneed toweigh theoddsofsuchafundingoption.Sometimesmoneyisgivenasagift.Itdoesnotneedtoberepaid.Othertimes,moneyisgiventobuy interest and ownership in the business. If this is the case, you need to determine thearrangementaheadoftime.Willyourfriendsandfamilymembershaveasayinthedecision-makingprocess?Aretheygivingyouthemoneyasaloanortobuyaninterestinthebusiness?Ifaloan,howwilltheyberepaid?Dotheyhaveanyprotectionsinplace?Regardlessofhowtherelationshipisdefined,youneedtobeverycareful.Ifthemoneyisagift,aloan,ortobuyaninterestinthebusiness,makesureyouhaveloanorinvestmentpapersdrawnupaheadof timewithclearlydefinedterms,ownership,andrepayment terms. Ifyoumust,handleworkingwithfriendsandfamilythesameasyouwoulddealingwithabusinessinterest.ALTERNATIVEAlternative funding sources are those sources that you have available outside of your personalassetsandnetworksandthosesourcesthatarenotestablishedfinancialinstitutions.


CrowdfundingCrowdfundingasafundingoptionispossiblebecauseoftheInternet.Asaresult,ithasgrownveryquickly.Crowdfundingisalsoknownasequitycrowdfinancing,crowd-financing,crowd-sourcedfunding.It isacollectiveeffort, largelyasaresultoftheInternetof individualswhonetworktopooltheirmoney,tosupporteffortsinitiatedbyotherorganizationsandpeople.Thereisasecondtermforcrowdfunding.Itcanalsorefertothefundingofacompanybysellingsmallamountsofequitytomanyinvestors.Crowdfundingcomesfromtheconceptof“crowdsourcing”. Thisiswhenanindividualreachesagoalofreceivingandtakingadvantageofsmalldonationsformanydifferentparties.Thedifferencebetweencrowdsourcingandcrowdfundingisthatthelatter,crowdfundingistofundaprojectoraventure,ratherthananindividual.Currently, the crowd fundingmodel consists of an online platformor organization that not onlymarkets theproject or venture, but alsooversees the fund raisingprocess. These crowdfundingplatforms act as the middleman between the project initiator (project sponsor) and investors(crowd).Crowd funding platforms are compensated for their services as the intermediary between theproject sponsors and investors by taking a percentage of themonies raised. Fees, services, andfundingpointsvarybyplatform.Currently,thereareseveralcrowdfundingplatformscompetingforprojectsandinvestors. SomeplatformsincludeKickstarter,Fundly,lndiegogo,Angellist,andRockethub.Peer-to-peerLendingPeer-to-peer(P2P)lending,likecrowdsourcinghaslargelyincreasedinpopularityasaresultoftheInternet. It is thepracticeof lendingmoney to individualsorbusinesses throughonlineservicesthatmatchlendersdirectlywithborrowers.SinceP2Plendersoperateentirelyonline,theycanrunwithloweroverheadandprovideservicesmore cost effectively than traditional financial institutions. As a result, they may earn higherreturns compared to savings and investment products offered by banks, while borrowers canborrowmoneyatlowerinterestrates.P2P lending companies oftenmake theirmoney by taking a fee for providing thematchmakingplatformandcreditcheckingtheborrower.


P2P lending isalsocalledcrowd lending. Manypeer-to-peer loansareunsecuredpersonal loanswithsomeofthelargestamountslenttobusinesses.Securedloansaresometimesofferedbyusingluxuryassetssuchasjewelry,fineart,buildings,automobiles,aircraftandotherbusinessassetsascollateral.Other forms of peer-to-peer lending include student loans, commercial and real-estate loans,paydayloansaswellassecuredbusinessloans,leasingandfactoring.AngelInvestorsAngel investors are often wealthy individuals such as other successful entrepreneurs, businessowners,andretiredexecutivesthatinvestinup-and-comingbusinesses.Angelinvestorsarelikeventurecapitalistsbutareusuallyindividuals.LikeVCs,theywillexpecttoseeareturnintheformofastockorstockbuybackwhenthebusinesspurchasesoutstandingstockwithaperiodoftime.For business owners seeking out angel investors, they should seek out lawyers and accountantswhooftenworkwithotherbusinessownersseekingoutsuchinvestmentopportunities.Inlargercities,angelinvestorsmayformagrouptoactivelyseekoutinvestmentopportunities.VendorFinanceForestablishedcompaniesthathavedemonstratedtheirabilitytodelivertheirproductontimeandasorderedbycustomers,vendorfinancingmaybeanoption.Vendorfinancingiswhenavendorextendstheirtermsofpaymentforapredeterminedlengthoftime.Inessence,moneythatwouldbepaidtoavendorisreinvestedinyourbusinesstoberepaidatalaterdate.You can approach a vendor and show them your business plan and the orders that you havereceived. If thevendorisconvincedthatyourbusinesswillbesuccessful,andoneoftheirbettercustomersinthefuture,theymaybewillingtoofferextendedpaymentterms.Theremaybeanaddedcostwiththisapproachinthatyoumayhavetoworkexclusivelywithyourvendorforanextendedperiodoftime.Additionally,youmayberequiredtopayahigherpriceforthisarrangement.


PrepayFinancingLike vendor financing, prepay financing is for established companieswho have demonstrated totheircustomerstheabilitytodelivermerchandiseontimeandasordered. Forthosecompanies,prepayfinancingmaybeanoption.Prepay financing iswhere a business asks some of their customers to put a deposit on a futureorder. The business can add an incentive for their customer by slightly decreasing the price inexchangeforthedeposit.Anotherformofincentiveistoaddacertainnumberoffreeunitsafteraminimumorderhasbeenplaced.Forexample,10freeunitswitha100-unitpurchase.Itmayalsobeacceptabledependingupontheindustrytoaskforadepositfromanewcustomerforalargeorcustomorder.Thisiscommoninthecustomsoftwaredevelopmentindustry.INSTITUTIONALAninstitutionallenderisanorganizationthatlendsmoneyforaninterestfeeandwhoseloansareregulatedby law, such as a bank, insurance companyor a savings and loanorganization. Theseorganizationsmay lendmoney thatwasreceived fromdepositorsasopposed toaprivate lenderwholendshisorherownmoney.BanksIf yourbusinesshas been around for a fewyears and youhave established a credit history, youhaveagoodchanceofgettingaloanfromabank.However,thereisoftenaverylongandtediousapplicationprocessthatcantakeweekstocomplete.Additionally,itcantakeseveralmoreweeksfortheloantobefunded.Ifyouareanewbusiness,bankswilloftenrequireaguaranteeandpersonalcollateralforbusinessloans. TheSmallBusinessAdministration(SBA)provides loanguarantees tobanks toencouragethemtoworkwithsmallbusinessloans.With an SBA guaranteed loan, if you default, the SBAwill repay the bank but you, the businessownerarestillresponsibleforthefullrepaymentoftheloan.


WorkingCapitalLendingWorkingcapitalloansareusedtofundeverydayoperationsofacompany.Loanproceedsareusedtopayforoperatingexpensessuchaspayroll,inventory,rawmaterials,andmarketingexpenses.Working capital is the cash available to finance a company’s short-term operational needs.Sometimes, a company doesn’t have the adequate cash on hand or asset liquidity to cover dailyoperationalexpenses.Therefore,workingcapitalloansaresimplecorporatedebtborrowingsthatareusedbyacompanytofinanceitsdailyoperations.Theadvantageofaworkingcapitalloanisthatitisquickandletsbusinessownersefficientlycoveranygapsinworkingcapitalexpenditures.Inadditiontothespeed,theothernoticeablebenefitisthatitisdebtfinancinganddoesnotrequireanequitytransaction. Thismeansthatthebusinessownermaintainsfullcontrolofhiscompany.

UnsecuredBusinessLendingAnunsecuredbusiness loandoesnot require collateral and is also called a line of credit. Theseloansareriskierforlendersduetothefactthattheyarenotsecuredbycollateralasarepaymentguarantee.Consequently,loanamountsareforasmalleramountandinterestratesarehigher.SmallBusinessLoansSmallbusinessloansareforbusinesseswithfewassetsthatgeneratemodestannualrevenue.Toqualifyforasmallbusinessloan,youmustcertaincriteria.Smallbusinessesaredefinedbyseveraldifferentcriteria includingamount,value, typesofassetsowned,numberofemployees,revenueandincomeandyearsinoperation.Most lending institutions making small business loans require a guarantee and some form ofcollateral. While the Small Business Administration, does not lendmoney directly, it does offerguaranteesforsmallbusinessloansthatqualifythroughfinancecompanies,commercialbanks,andgovernmententities.TheSmallBusinessAdministrationisaUnitedStatesgovernmentagencythatprovidessupporttoentrepreneursandsmallbusinessesintheformofcapital,contractsandcounseling


MinorityBusinessLoansFor business that are exclusively owned, or majority owned by individuals with a minoritybackground,thereareminoritybusinessloans.Minorityloansarenotjustforsmallbusinesses.Largerbusinessesmayqualifyaswell.Applicantsarerequiredtocomplywiththelender’srequirementsfortheloan.Requirementsmaybebasedonminorityownershiporbeinglocatedinlargelyminorityoccupiedcommunities.It is not only for-profit financial institutions that offerminoritybusiness loans. Somenon-profitentities that advance and support minority groups may have small business loan programsavailable.GOVERNMENTFederal, state and local governments can also make loans to small businesses. A government-backed loan is a loan subsidized by the government,which protects lenders against defaults onpayments,thusmakingiteasierforlenderstoofferpotentialborrowerslowerinterestrates.FederalGrantsforSmallBusinessTheSmallBusinessAdministrationmayguaranteealoanorprovidegrantstobusinessesthatmeetthe size standards set forth for companies inmost industries across theeconomy. The commonsizeandrevenuestandardsare:

• 500employeesformostminingandmanufacturingindustries• $6millionformostretailandserviceindustries• 100employeesforallwholesaletradeindustries• $0.75millionformostagriculturalindustries• $12millionforallspecialtradecontractors• $28.5millionformostgeneralandheavyconstructionindustries

The size and revenue standards set forth by the SBA are for themost part, used by all federalagencies andmost state and local governments. There is a great dealmore information on thesmallbusinessadministration(sba.gov)website.


StateGrantsTheStatewhereyourbusiness is located is a greatplace to start your search for small businessgrants. Many states have agencies designed to offer grants and business assistance in order toencouragesmallbusinessgrowthanddevelopment.Most stateswill have a Small BusinessDevelopment Center (SBDC) that is associatedwith localcollegesanduniversities.SBDC’sprovidetrainingandadvicetosmallbusinessesonallaspectsoffinancing, starting a business and keeping it going. They are also part of a larger nationwidenetworkofsites.YoucanfindmoreinformationbyvisitingtheAssociationofSmallBusinessDevelopmentCenters(ASBDC)www.asbdc.org.Equityvs.DebtFinancingFinancingcanbebrokendownintotwodifferenttypes,equity financinganddebt financing. Thetablebelowoutlinesthedifferencesofeach.

EQUITYFINANCING DEBTFINANCINGDEFINITION

Equityfinancingistheprocessofraisingcapitalthroughthesaleofsharesinanenterprise.Equityfinancingessentiallyreferstothesaleofanownershipinteresttoraisefundsforbusinesspurposes.

Debtfinancingmeansborrowingmoneyandnotgivingupownership.Debtfinancingoftencomeswithstrictconditionsorcovenantsinadditiontohavingtopayinterestandprincipalatspecifieddates.

WHOUSESTHISFORMOFCAPITAL?

Businesseswithaconventionalapproachtomanagement,profitability,and/orpoorcreditratingsrelyonequityfunding.Start-upsandnewbusinessesthatdon’thaveatrackrecordofsuccessorfaceuncertaintyalsouseequityfunding.

Wellestablishedbusinessesthathaveshownsteadysales,solidcollateral,andprofitablegrowthrelyondebtfinancing.

SOURCESOFFUNDING

§ Personalfundsfromsavings,creditcards,retirementaccounts,equity,andproperty

§ Friendsandfamily§ Venturecapitalistsandangel

investors§ Investmentbankingfirms§ Insurancecompanies§ Largecorporations§ Government-backedSmall

§ LoansthroughtheSmallBusinessAdministration

§ Commercialbanks


BusinessInvestmentCorporations(SBIC)

REQUIREMENTS

• Well-detailedbusinessplanandclearlydefinedexitstrategy

• Goodcredithistory• Borrowersmustdemonstrate

theirbusinessisinhigh-growthindustrywiththepotentialtogeneratealargereturnoninvestment.

• Borrowersmustshowpotentiallendersthattheyarewillingtoinvestinthebusinessusingtheirownmoney.

• Theborrowermusthaveanexceptionalcredithistory.

ADVANTAGES

• Equityenablesthebusinessownertoobtainfundswithouttakingondebt.Thisgeneratesahighercashflow.

• Businessownerscanfocustheirattentionontheirbusinessratherthanpayinginvestorsback.

• Additionalcashflowgeneratedcanbereinvestedratherthanappliedtowardspayingdowndebt.

• Enablesthebusinessownerandinvestorstheopportunitytodevelopalong-termrelationshipoverthedurationoftheinvestment.

• Borrowingfromfamilyandfriendscanbealow-costwayofsecuringfunds

• Thelenderdoesnotgainownership.Asaresult,thebusinessownersretainmaximumcontroloverthebusiness.

• Theinterestpaidondebtfinancingistaxdeductible.

• Thebusinessownerhasnoobligationtothelenderotherthanrepaymentoftheloan.Oncerepaymenthasbeenmade,therelationshipends.

• Repaymentoftheloanisoftenafixedormonthlyexpense,dependinguponthetermsoftheloan.

DISADVANTAGES

• Financialreportingrequiredofinvestorscanbequitecomplex.

• Relationshipswithfamilyandfriendscanstrainiftheinvestmentgoesbad.

• Dilutionofownershipcanoccurleadingtoalossofcontrol.

• Angelinvestorsandventurecapitalistsarelikelytobeinvolvedineverybusinessdecision.

• Theuseoftoomuchequitycansuggestthatborrowedfundsarenotbeingusedeffectively.

• Theuseoftoolittleequitycansuggestthatbusinessownersarenotcommitted.

• Oftenlimitedtoestablishedbusinesseswithasolidtrackrecordofsuccess.

• Badcreditrecordscanresultintheinabilitytopaybackborrowedfunds,limitingtheabilitytosecureadditionalcapital.

• Someofthecashflowwillbedirectedtoservicethedebt,leavinglesscapitalforreinvestment.

• Requiresamonthlypaymentthatlimitscapitalavailableforreinvestment.

APPLICATIONPROCESS

• Angelinvestorsandventurecapitalistswillputthebusinessownerandbusinessthroughathoroughandexhaustiveduediligenceprocess.

• Familyandfriendswillnotusuallyrequireanapplication

• Aformalapplicationmustbefilledouteitherinpersonoronline.


processCREDITCHECK

• Angelinvestorsandventurecapitalistsmayrunacreditcheckbutmayrelyonthepotentialreturnoninvestment.

• Mostfamilyandfriendswillnotrunacreditcheck

• Yes,thehigherthebusinessowner’screditscore,thebetterthechanceofsecuringtheloan.

FUNDINGTERMS

• Angelinvestorsandventurecapitalistswillusuallyinvestfora3to7yeartimehorizon.

• Short-termdebtfinancing:Totalrepaymentofdebtinoneyearorless.

• Long-termdebtfinancing:Totalrepaymentofdebtinoveroneyear.

ADDITIONAL

• Anotherformofequityfinancingistosellstocktoemployees.EmployeeStockOwnershipPlans(ESOP),sharecontrolofthecompanywithemployeesratherthanoutsideinvestors.

• Aballoonpaymentisanadditionalformoflong-termdebtfinancing.Attheendoftheteam,theborrowerandlendernegotiateanewamountfromwhatisleftoftheloan.

• Longtermfinancingisusuallyvariablemeaningtheinterestisusuallyadjustedupordownaccordingtotheunderlyingindex.

ThingstoConsiderCredithistoryAcreditandfinancialhistoryshowsprospectivelendersaborrower’sabilitytomanagetheirfinances.Formostlenders,acredithistoryisveryimportant.However,workingcapitallenderswillrelymoreupontheunderlyingfundamentalsofthebusinessandcashflow,ratherthanacredithistory.AbilitytorepaytheloanConsiderhowyouwillpaybackwhatyouborrow.Theinterestrateappliedtotheloanisdirectlyrelatedtotheborrower’sabilitytorepaytheloan.Ifyourcredithistoryisnotgood,youwillbeperceivedtobeabiggerriskandwillbechargedahighercorrespondinginterestrate.ExpertiseandexperienceLenderslookatindustryexperienceaswellasrelevanteducationthatcanbedirectlyappliedtoyourbusiness.Ifyouhavemanagementexperienceorhirekeymanagers,lenderswilllookatsuchdevelopmentfavorably.Diversifyyourcustomerbase


Makesurethatyouarenotdependingupononlyoneorafewcustomersforyourbusiness.Ifoneorafewcustomersleave,itcanbedevastatingtoyourbusiness.IncorporateyourbusinessIfyouhavenotyetincorporatedyourbusiness,thinkaboutdoingsobeforetoolong.Incorporationshowsprospectiveinvestorsandlendersthatyouareseriousaboutwhatyouaredoingandhaveinvestedintakingyourbusinesstothenextlevel.ContingencyplansTalktoyourinvestorsandlendersaboutwhathappenswhenyoudon’treachprofitabilityandclosureisinevitable.Youcouldarrangetocontinuemakingloanpaymentsbysellingyourbusinessassets.Yourinvestorsandlendersmaybeabletohelpyoudevelopplanstopaydownyourdebts.InsuranceProtectyourself,yourfamily,investorsandlendersfromcatastrophicevents.

SourcesPeer-to-peerlendingSmallBusinessAdministration,www.sba.govAssociationofSmallBusinessDevelopmentCentersWorkingCapitalLoansUnsecuredvs.securedborrowingFederalGrantsforSmallBusinesses

Small Business funding guide - Zip Capital Group · Zip Capital Group Guide to Small Business...

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