Financing is seeking an infusion of cash into the business by obtaining either a loan from a family member, friend or a financial institution, or accessing the equity markets through the sale of stock or an equity position in the company.
Short term borrowing, such as Bridge loans, lines of credit or credit cards, should only be used for seasonal fluctuations in business or inventory purchases, both of which should be repaid within 1 year. Long term borrowing, such as bank loans or equity transactions, should only be used for acquisition of assets (building, land or equipment), or expansion of business that includes building, land or equipment.
AnnualCreditReport.com – The only authorized source for obtaining your annual free credit report. Information in your credit report is used to evaluate your applications for lines of credit. The Federal Trade Commission recommends that you check your credit at least once a year to correct errors and detect unauthorized activity.
Small Business Loans – The SBA offers several loan and grant programs for small businesses.
Idaho Prime Loan Program – A cooperative effort between the Idaho State Treasurer, the Small Business Administration, and the banking community helping to make capital available to all small businesses throughout the state of Idaho.
Idaho Investment Groups
- Boise Angel Alliance – Links investors seeking to invest in high growth potential early stage Idaho companies with entrepreneurs seeking investment capital.
- Keiretsu Forum – An investment community of accredited equity investors, venture capitalists, and corporate investors.
What do Lenders Look For?
Understand what your banker is looking for when you approach him/her with your business plan/budget requesting a business loan.
- Experience – specific business/industry (as manager/owner)
- Resume – classes, training, previous skill usage
- Skill of your team – staff & advisors
- Action plan to get needed skills that are lacking.
- Show that the business can repay the loan
- Cash flow & income statements
- Where did you get those numbers in the budget?
- Schedule loan repayment period to life of the asset
- Run financials also with worst case interest rate tests.
- Show willingness to pay
- Credit history (check into your current credit report)
- Get any bad news on the table up-front – no surprises later
- Bankruptcy & bad credit
- Problems with the law – criminal history may delay processing of the loan.
- If married or separated, spouse must sign financials (community property state).
Debt / Worth
- You MUST use some of your own money
- How much? (average 20-30% depending on risk & amount)
- Borrow against your personal assets
- Borrow from friends or family
- Seller financing.
Collateral – Security for the loan
- Assets you may lose if business fails.
Contingency – Be prepared to discuss how you will repay this loan in the event the business can not.