Finding Start-Up Money for Your New Business
Entrepreneurs often have wonderful ideas for starting an enterprise. But how and where to find the money to build the business they have planned? There are many options, as well as organizations, to turn to for help.
A wise first step is to use a book on the subject of starting and financing a business. Such books will outline how to calculate the amount of capital you will need, how to establish a good credit record, sources of funding and types of loans. To locate books in the library, you can do a keyword search on the Electronic Catalog. Try using keywords such as "small business" and "money."
Secondly, you should understand how much money you will need to get started. Read through the "Got Money?" section of the library's website to get a handle on these expenses. The interactive Start-Up Cost Calculator and Cash Flow Forecaster at the end of the section should be a big help.
In addition to books please check out the resources the Business Library offers on the following aspects of funding a new business:
To obtain financing of any type, a business plan is essential. It is a required part of the loan process and it will help you determine how much money your start-up will require
The library has books with instructions and sample plans, plus demographic and statistical data that are the basis of constructing a convincing plan. Check out on this Web site for more ideas, plus some great links to sites with business planning tools and the names of organizations that offer classes on how to write a business plan.
To obtain start-up capital you also will need a good credit history.
You should establish a checking account and credit card in your own name to develop a credit history, and make sure you pay your bills on time.
You can also obtain a copy of your personal or your company's credit report. Contact one of the major credit reporting agencies via their Web sites. They all offer this service for a fee. If you find your credit rating is poor, books and advisers address how to repair your rating. Seminars on credit repair are offered by local business assistance providers, such as Accion.
Once you have a business plan and a good credit rating, where can you turn for financing? Most entrepreneurs supply the major portion of start-up funds themselves. If you are not willing to make a substantial personal investment yourself, banks, partners and other sources are less willing to contribute. It is easier to borrow money to expand a firm that has been in business for more than a year.
Many business advisers strongly recommend that you continue full-time work at another job to maintain a source of income in the early stages of starting a company. Or even take a second job before starting the business--simply to raise the extra capital you will need. Family and friends often lend money, and may become active or silent partners.
Personal credit cards can be used to finance many purchases, and are a source of quick credit. But their interest rates are high, so only use them if you can pay off the balance quickly.
If you are looking for investors other than your family or yourself, venture capital firms or "business angels" are possibilities.
Venture capital firms are interested in investing in high-growth companies but demand a large share of the company's profits and management influence. "Business angels" provide seed money and advice to a business they consider a good risk. Sometimes an angel is a business colleague or friend who has confidence in your venture.
The National Association of Small Business Investment Companies , www.nasbic.org, represents SBICs (small business investment companies), which are private firms licensed by the SBA. They are listed online and in the NASBIC Membership Directory, found in the Library's directory collection.
To read more about these types of investors or to locate them, use Pratt’s Guide to Venture Capital Sources, The Corporate Finance Source Book or the venture capital chapter of the Small Business Sourcebook. There are numerous Web sites designed to link investors with entrepreneurs. Some of these sites represent venture capital firms soliciting business, others are more like clearinghouses and charge a fee for their services. Here are a few examples:
Lending institutions are an another source of funds. They offer loans that must be paid back with interest. There are many different kinds of loans-- loans for different amounts of money, for different purposes, with different interest rates and for different lengths of time. How do you decide what type of loan you need, and who offers it? Once again there are books that explain this, and there are Web sites as well. A great site to start with is the Federal Reserve Bank of New York's site on the Small Business Credit Process.
A grant is money given to an organization or an individual to accomplish a task or service, frequently one that benefits a community. Many grants are targeted to aid research, education or the needy. Private foundations and the government usually offer specific grants that are awarded after a proposal is submitted. There are virtually no grants available for starting a business.
Trickle Up Grants are an exception. They are awarded to low-income individuals starting a home-based business, with a cap of $700. These grants are implemented through local nonprofit organizations, often Community Based Lenders. Many are listed under Loan Programs below. The Foundation Center at 79 Fifth Avenue, 212-620-4230, is an excellent resource for locating grants and foundations of all types available to non-profit organizations or individuals. The federal government's website, Grants.gov , allows organizations to locate and apply for federally funded programs. The Get Started section is the best way to begin. This is a great place to learn about new grants as they become available.
Individual Development Accounts or IDAs are another source of funds for economically disadvantaged entrepreneurs. They reward the monthly savings of working-poor families who are trying to buy their first home, pay for post-secondary education, or start a small business. This incentive is provided through the use of matching funds that typically come from a variety of private and public sources and are administered by community-based programs. Explore the IDAnetwork for a complete explanation of IDAs and their eligibility requirments, as well as a state by state listing of IDA programs. I
Government Incentive Programs also assist businesses by offering tax abatements, energy assistance and more to qualifying businesses, but these are not grants. Contact the following agencies for more details on government incentive programs:
When a business needs additional funds to pay for day-to-day expenses before income comes in, for new equipment, or for expansion, a common strategy is to borrow money in the form of a loan. A loan generally incurs interest fees and requires an application fee. Costs vary from lender to lender, and the borrower needs to compare the rates. Though the terms of the loan may vary, the interest and base must be repaid, and the availability and cost of a loan depends on the lender's assessment of the borrower's ability to repay it.
Following are some of the different types of loans to fit various needs and payment terms:
- Accounts Receivable Loans are secured by outstanding accounts/invoices for up to 75 percent of the value of the amount due.
- Balloon Loans are identified by their payment schedule. Periodic payments are made and the amount of the principal is due on the final day.
- Equipment Loans are for new equipment and are secured by the value of the equipment.
- Equity Loans or second mortgages use real estate to secure the loans.
- Fixed Asset Loans are used to pay for equipment or improvements.
- Installment Loans are paid back with equal monthly payments covering both principal and interest.
- Inventory Loans are secured by the value of your inventory.
- Lines of credit give access to cash by extending the cash available in the business' checking account, up to a certain credit limit. Usually the terms are for one year and have to be renewed. Interest is payable from the time the amount is advanced until it is paid back.
- Micro Loans involve small amounts of money, from about $500 to $25,000. Frequently they accommodate small businesses in their early growth stage and require less stringent criteria. Micro loans are usually offered by community-based lenders because the amounts are too small and the terms too risky for commercial lenders.
- Peer Lending is a system of lending in which a new business is monitored and assisted by business peers to ensure that the business succeeds and the loan is paid off. Project Enterprise practices peer lending.
- Secured Loans require some type of collateral such as real estate, accounts receivable, inventory, etc., because the business is considered to be risky and less likely to repay the loan. Unsecured loans require no collateral because the business is considered low risk.
- Term Loans, e.g., Long or Short Term, describe the length of time the borrower has to pay back the loan.
- Working Capital Loans are used to increase the cash reserves of a company when a special circumstance causes day-to-day expenses to increase.
To obtain a loan you must submit a loan application which usually includes a business plan, financial statement, earnings projections and other documents.
Loans are offered by financial institutions such as banks and credit unions, as well as comunity based lenders.
Assistance in the loan process for small businesses is often available from government agencies and community-based lenders. Frequently they work with commercial lenders, guaranteeing loans and increasing the number of loans offered to businesses in formerly underserved areas.
If you are just starting out, it would be a good idea to contact one of these agencies, since they can outline the different types of loans, as well as the steps involved in securing a loan. Many of the organizations listed below offer classes on writing business plans and other technical assistance. To get an idea of the services and types of loans they offer, you can also link to the Web sites of these organizations.
Accion New York
718-599-5170, 235 Havermeyer Street, Brooklyn, NY 11211 www.accion.org
Micro loans from $500 to $50,000. Startups are eligible; there is no minimum length of time a business needs to be in operation.
Bedford Stuyvesant Restoration Corporation
718-636-6924, 1368 Fulton St., Brooklyn 11216 http://www.restorationplaza.org/bd/
An economic development organization that administers the Restoration Capital Fund comprised of four individual programs including Trickle Up Grants (see Trickle Up Grants).
Business Center for New Americans
212-425-2900, New York Association for New Americans (NYANA), 17 Battery Place, New York 10004 http://www.nyana.org/businesscenter.asp
The Microenterprise Development Program offers technical assistance and a micro loan fund.
Business Outreach Center Network (BOC) BOC Capital Corp.
718-624-9115, Central Office, 85 South Oxford Street, Brooklyn, NY 11217
http://www.bocnet.org/boc/micro_loan_program.html
Offers small business loans of up to $25,000, as well as business development assistance at a number of locations throughout Brooklyn and New York City's other boroughs.
240 Central Park, Ste -7H, New York, NY 10019
http://www.countmein.org/site/
Micro Loans from $500 to $100,000 to women who are starting or growing their businesses. The first loan must be $5,000 or less.
New York Business Development Corporation
633 Third Avenue, New York 10017 www.nybdc.com
Offers both conventional and SBA backed loans from $25,00 to $750,000. Affiliated with New York State Empire Development Corp.
New York City Financial Network Action Consortium
Remsen Street, Suite 350; Brooklyn, NY 11201; 718-260-0099
www.nycfnac.org/programs.html
Supports and strengthens the capacity of local credit unions' ability to serve low income individuals. NYCfNAC offers business courses, consulting services, financial planning, and loan programs. All loans are prescreened by NYCfNAC which underwrites loans above $25,000.
Project Enterprise
212-678-6734, 144 West 125th Street, New York 10027 www.projectenterprise.org
Micro loans to low-income individuals; offers technical assistance and training through its peer lending program.
915 Broadway, 17th Floor , New York, NY 10010, Tel: (212) 204-1300
http://www.seedcofinancial.org/newyork/
Provides a range of affordable financing products to small businesses, nonprofit organizations.
1 Pike Street, New York, NY 10002, Phone: 212-964-6022
http://www.renaissance-ny.org/
Provides loans to startup and early-stage businesses up to $50,000
The U.S. Small Business Administration
212-264-4354 26, Federal Plaza, Room 3100, New York 10278 www.sba.gov
The SBA has designed many loan packages, including micro loans. Many banks offer loans backed by the SBA. For a complete listing of the offerings, check out the Web site.
Women's Venture Fund
212-563-0499, 240 W. 35th Street, Suite 201, New York 10001 www.womensventurefund.org
Borrowers must be in business a minimum of three months and be 51 percent women-owned to receive micro loans up to $15,000.
Nearly every bank offers loans to small businesses. Check with banks in your area to compare services and fees. Many of the community-based lenders listed above, as well as the Small Business Administration, work with commercial lenders and will provide you with a listing of banks.
The New York State Banking Department's site www.banking.state.ny.us/sbusines/sba.htm has a section on small business financing that lists lenders plus details on low-interest loans subsidized by New York State. The Library also has a number of directories such as the Thomson Bank Directory and Thomson Savings Directory.
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