SORRY – NO FREE LUNCH

Free money from the Government to start or expand your business? NOT!!!

There are plenty of adds in magazines and on the web proclaiming that for a small fee the advertiser will help you to obtain a Federal Grant to start or expand your business. Well, here is what the Federal Government has to say about that:

'The federal government does not provide grants for starting and expanding a business.

“Grants from the federal government are only available to non-commercial organizations, such as non-profits and educational institutions in areas such as, medicine, education, scientific research and technology development. The federal government also provides grants to state and local governments to assist them with economic development.

Some business grants are available through state and local programs, non-profit organizations and other groups. For example, some states provide grants for expanding child care centers; creating energy efficient technology; and developing marketing campaigns for tourism. These grants are not necessarily free money, and usually require the recipient to match funds or combine the grant with other forms of financing such as a loan.

If you are not one of these specialized businesses, both federal and state government agencies provide financial assistance programs that help small business owners obtain low-interest loans and venture capital financing from commercial lenders.”

Business.Gov (Small Business Grants)


So, before you and over your hard earned cash to someone who guarantees to get you federal grant money for your business, ask them if they are talking about getting money for a commercial venture or for a non-commercial organization.

If you are looking for funding for a qualifying organization, then you may wish to take a look at the Federal Government’s grant webpage: Grants.Gov.

I’M FROM THE GOVERNMENT AND I’M HERE TO HELP YOU?

Most people cringe when they hear that phrase, because when the “Feds” get in involved, things often go badly wrong.

But not always.

If you read my previous post, you will recall that I closed by saying the before you went scouting around for financing, you needed to have a BUSINESS PLAN. The term Business Plan can give an entrepreneur a pain more annoying than a tooth ache. But Business Plans are a reality in the world of finance. It’s Simple, when you deal with banks and professional lenders – No Plan = No Loan.

But take heart, a Business Plan is not rocket science and it can be done without a great deal of pain. AND HERE’S THE GOOD PART: The Federal Government Really Can Help You With This!

Let me introduce you to the SBA’s “Small Business Planner.” This is a series of web sites that can take the small business owner from “Soup to Nuts” in planning and running his business.

In my last post, I think I may have gotten your attention with an article about financing your business. Now that I have gotten your attention, let me bring you back to reality. Financing will do you no good, if you do not have a sound business plan. A fool and his money are soon parted, and if you go into business without a plan, you may just be that fool.

And even before you try to write your business plan, you need to know what you are doing and why. The SBA has plenty of helpful information that can guide you along the path to establishing your small business and their Small Business Planner is a great place to start. It has everything from start to finish with a small business. And remember, at some point there will be a "finish." And whether you will be around to see it or not, you should plan for it.

Here is a list of the topics covered by the SBA Small Business Planner:

Plan Your Business
Get Ready
Write a Business Plan

Start Your Business
Find a Mentor
Finance Start-Up
Buy a Business
Buy a Franchise
Name Your Business
Choose a Structure
Protect Your Ideas
Get Licenses and Permits
Pick a Location
Lease Equipment

Manage Your Business
Lead
Make Decisions
Manage Employees
Market and Price
Market and Sell
Understand Fair Practice
Pay Taxes
Get Insurance
Handle Legal Concerns
Forecast
Advocate and Stay Informed
Use Technology
Finance Growth

Getting Out
Plan Your Exit
Sell Your Business
Transfer Ownership
Liquidate Assets
File Bankruptcy
Close Officially

As you can see, the list is quite extensive; but for now, we are only going to focus on the section titled "Plan your Business" and we will use the SBA website as a guide while looking at other helpful sites to simplify or fill in the gaps.

A COUPLE OF FINAL NOTES FOR THIS POST

Before you get too far into the Small Business Planner, you should take a moment to look at the
SBA Business Assessment Tool. Being an entrepreneur is not for everyone, and this Assessment Tool can help you to decide if being a small business person is for you. You don’t want to go through all of the trouble to start a business, and get it funded only to find out that you don’t like it. This Assessment Tool is pretty straight forward, and is well worth the effort it takes to complete it.

Finally, there is a SBA Business Plan Tutorial and a SBA Business Plan Template available for you provided by the SBA using these two sites helps you to understand what you are doing and why you are doing it (in terms of a Business Plan); and the Template helps keeping you from having to reinvent the wheel.

There is plenty to explore in the SBA’s Small Business Planner, and in future posts I will explore some the specific items.

START-UP CAPITAL FOR YOUR SMALL BUSINESS

So you know what type of business you want to go into and you know what type of business structure your business will have. Regardless of whether you want to go into business with a Sub S corporation or a LLC or some other entity, you will need money to get it off the ground.

What we are talking about is “START-UP CAPITAL”

The U.S. Government’s Small Business Administration offers the following advice:

“Before seeking financial assistance, ask yourself the following:

“Do you need more capital or can you manage existing cash flow more effectively?

How do you define your need? Do you need money to expand or as a cushion against risk?

How urgent is your need? You can obtain the best terms when you anticipate your needs rather than looking for money under pressure.

How great are your risks? All businesses carry risks, and the degree of risk will affect cost and available financing alternatives.

In what state of development is the business? Needs are most critical during transitional stages.

For what purposes will the capital be used? Any lender will require that capital be requested for very specific needs.

What is the state of your industry? Depressed, stable, or growth conditions require different approaches to money needs and sources. Businesses that prosper while others are in decline will often receive better funding terms.

Is your business seasonal or cyclical? Seasonal needs for financing generally are short term. Loans advanced for cyclical industries such as construction are designed to support a business through depressed periods.

How strong is your management team? Management is the most important element assessed by money sources.

Perhaps most importantly, how does your need for financing mesh with your business plan? If you don't have a business plan, make writing one your first priority. All capital sources will want to see your business plan for the start-up and growth of your business.

The also want the reader to know:

Not All Money Is the Same
There are two types of financing: equity and debt financing. When looking for money, you must consider your company's debt-to-equity ratio - the relation between dollars you've borrowed and dollars you've invested in your business. The more money owners have invested in their business, the easier it is to attract financing.

If your firm has a high ratio of equity to debt, you should probably seek debt financing. However, if your company has a high proportion of debt to equity, experts advise that you should increase your ownership capital (equity investment) for additional funds. That way you won't be over-leveraged to the point of jeopardizing your company's survival.



Equity Financing
Most small or growth-stage businesses use limited equity financing. As with debt financing, additional equity often comes from non-professional investors such as friends, relatives, employees, customers, or industry colleagues. However, the most common source of professional equity funding comes from venture capitalists. These are institutional risk takers and may be groups of wealthy individuals, government-assisted sources, or major financial institutions. Most specialize in one or a few closely related industries. The high-tech industry of California's Silicon Valley is a well-known example of capitalist investing.

Venture capitalists are often seen as deep-pocketed financial gurus looking for start-ups in which to invest their money, but they most often prefer three-to-five-year old companies with the potential to become major regional or national concerns and return higher-than-average profits to their shareholders. Venture capitalists may scrutinize thousands of potential investments annually, but only invest in a handful. The possibility of a public stock offering is critical to venture capitalists. Quality management, a competitive or innovative advantage, and industry growth are also major concerns.

Different venture capitalists have different approaches to management of the business in which they invest. They generally prefer to influence a business passively, but will react when a business does not perform as expected and may insist on changes in management or strategy. Relinquishing some of the decision-making and some of the potential for profits are the main disadvantages of equity financing.


Debt Financing
There are many sources for debt financing: banks, savings and loans, commercial finance companies, and the U.S. Small Business Administration (SBA) are the most common. State and local governments have developed many programs in recent years to encourage the growth of small businesses in recognition of their positive effects on the economy. Family members, friends, and former associates are all potential sources, especially when capital requirements are smaller.

Traditionally, banks have been the major source of small business funding. Their principal role has been as a short-term lender offering demand loans, seasonal lines of credit, and single-purpose loans for machinery and equipment. Banks generally have been reluctant to offer long-term loans to small firms. The SBA guaranteed lending program encourages banks and non-bank lenders to make long-term loans to small firms by reducing their risk and leveraging the funds they have available. The SBA's programs have been an integral part of the success stories of thousands of firms nationally.

In addition to equity considerations, lenders commonly require the borrower's personal guarantees in case of default. This ensures that the borrower has a sufficient personal interest at stake to give paramount attention to the business. For most borrowers this is a burden, but also a necessity

This information can be found at the following SBA website on start up capital


How Stuff Works has a very useful web site that explains in greater detail HOW START UP CAPITAL WORKS . This How Stuff Works website is a cluster of multiple web pages that walks the reader through start-up financing, as well as having a Glossary. Capital Needs, Types of Capital, Using Personal Funds, Borrowing from Friends and Family and Getting a Business Loan are just some of the topics covered at this website.

Inc. Magazine also has an on-line article on Start-Up Financing that cover quite a bit of ground. The language in the Inc. Magazine article is a little more sophisticated than that in the How Stuff Works article, and it may be more suitable for individuals with a higher degree of experience in business.

Lastly, I would like to mention the Entrepreneur Website . It is short and concise and gives a quick overview of the topic and reading this may be helpful for understanding the other articles.


Money is the life’s blood of any business and if you do not have it to start your business then nothing will happen. You should not be deterred by the perceived obstacles to obtaining the necessary capital to start your business; you just need to know where to go for expert advice and then have the discipline to follow it.

Finally, I would like to direct your attention to a statement by the SBA that I quoted earlier in this article:
”Perhaps most importantly, how does your need for financing mesh with your business plan?”

Before you can finalize your decisions about your start-up financing, you need to have A BUSINESS PLAN

Most sources of financing will not even consider investing in your business if you do not have an intelligent Business Plan. And Business Plans will be the topic of my next Post. So until then, Keep Up the Entrepreneurial Spirit!