Finding Capital

Know how to find various sources of capital to begin your business. http://www.business.gov/phases/launching/finance_startup/finding_capital.html. Raising capital is the most basic of all business activities, but it may not be easy; in fact, it is often a complex and frustrating process. However, if you have studied and planned effectively, raising money for your business will go as smoothly as possible.

Finding The Money You Need

It is important to explore all of your financing options before making a decision; several sources to consider are:

Personal Savings: The primary source of capital for most new businesses comes from savings and other personal resources. While credit cards are often used to finance business needs, there are usually better options available, even for very small loans.

Friends And Relatives: Many entrepreneurs look to private sources such as friends and family when starting out in a business venture. Often, money is loaned interest-free or at a low interest rate, which can be beneficial when getting started.

Banks And Credit Unions: The most common sources of funding, banks and credit unions, will provide a loan if you can show that your business proposal is sound.

Angel Investors And Venture Capital firms: These individuals and firms help expanding companies grow in exchange for equity or partial ownership .

A source of venture capital is the SBA's Small Business Investment Company (SBIC) Program. SBICs, licensed and regulated by the SBA, are privately owned and managed investment firms that use their own capital, plus funds borrowed at favorable rates with an SBA guarantee, to make venture capital investments in small businesses.

Read the SBA's Venture Capital Primer For Small Business (Word document)

Read the SBA's Financing for the Small Business (Word document)

Borrowing Money 

It is often said that small businesses face difficulty borrowing money, but this is not necessarily true. Banks make money by lending money. However, the inexperience of many small business owners in financial matters often prompts banks to deny loan requests. Requesting a loan when you are not properly prepared suggests that you are a high risk. To successfully obtain a loan, you must be prepared and organized. You must know exactly how much money you need, why you need it, and how you will pay it back. You must be able to convince your lender that you are a good credit risk.

Types Of Business Loans 

Terms of loans vary from lender to lender, but there are two basic types: short-term and long-term. Generally, a short-term loan has a maturity of up to one year. These include working capital loans, accounts receivable loans, and lines of credit. Long-term loans have maturities greater than one year but usually less than seven years. Real estate and equipment loans may have maturities of up to 25 years. Long-term loans are used for major business expenses such as purchasing real estate and facilities, construction, durable equipment, furniture and fixtures, vehicles, etc.

SBA loan programs are intended to encourage long-term small business financing, but actual loan maturities are based on the ability to repay, the purpose of the loan proceeds, and the useful life of the assets financed. However, maximum loan maturities have been established: twenty-five years for real estate, up to ten years for equipment (depending on the useful life of the equipment), and generally up to seven years for working capital. Short-term loans are also available through the SBA to help small businesses meet their short-term and cyclical working capital needs. Read the SBA's "The Benefits of Making Your Banker Your Friend" While every business has a bank, few have a banker. That's because bankers are too often seen as obstacles standing between an entrepreneur and the bank's vault. "You don't do business with an institution. You do business with people. When you get a banker who believes in you, you can accomplish incredible things," counsels Debbi Fields, founder and chair of the board of Mrs. Fields Cookies. The banker is the loan officer or office manager who handles your account. A good relationship with that person can bring you money in the form of credit, save you money in fees, and enhance your business opportunities through taking advantage of the banker's extensive personal contacts. Relations between bankers and business owners take on as many hues and shapes as relationships between husbands and wives, but the best ones all have trust and honest communication in common. "Ideally, it's a human relationship as well as a business relationship," says Bill Byrne, an entrepreneur and author of  Habits of Wealth.

Why Have A Relationship?

Better access to credit is one of many benefits garnered by those with good banker relations. The biggest intangible in any loan request is the person who is asking for the money, notes Mitch Hurly, vice president and manager at First Security Bank of Utah. The more secure a banker feels about a borrower's integrity, the better the chances for loan approval. A strong, trusting relationship helps give a banker the important sense of security. As credit is more than just loans, good banker relationships can also result in performance bonds, letters of credit, and the granting of credit lines, say several business owners. Tom Rose, co-owner of Marietta Industrial Enterprises Inc., a warehousing and transportation company in Marietta, Ohio, estimates he shaves 30 to 60 days off transactions such as getting loans or credit line extensions because of the close relationship established with his banker. When a deal's window of opportunity is narrow, a quick bank approval can make the difference between getting the deal and losing it. Bankers can also provide introductions to potential customers, suppliers, employees, and investors because of their many connections in the community. Only a strong relationship with the business owner earns such personal introductions. "If bankers say nice things about us, it's a tremendous reference," emphasizes Sidney Green, president and chief executive officer of Terra Tek, an environmental services firm in Salt Lake City. He's worked with the same bank since 1970, and his employees have benefited as well when they needed services such as auto loans and home mortgages. "My banker provides me with a lot of support and insights. I have a much higher comfort level, and that's worth a great deal to me," says Suzanne Edgar, president of Columbus, Ohio-based Epro Inc., a floor tile manufacturer, citing an important advantage of the relationship - peace of mind. Paul Sharfin, president of M&P Construction Company Inc., in Blacklick, Ohio, notes: "A banker is similar to your barber. You keep going to the same barber because you're comfortable with him; he takes care of you and he does a little bit extra."

Poor Relations Are Common

If banker relationships can be so beneficial, why do so many business owners suffer through poor ones or cultivate none at all? Often, the problem is that entrepreneurs don't understand the restraints and needs of bankers. Think of capital as a food chain, suggests Raymond Smilor, vice president of the Center for Entrepreneurial Leadership, Kauffman Foundation, in Kansas City, Missouri. Early in the food chain, capital should come from private investors such as family and friends. Later, professional investors such as venture capitalists can be tapped. Only when the business has solid assets and a steady track record is it ready for a banker. Smilor says that owners of emerging businesses often struggle with their bankers because they ask for too much given the immaturity of their companies.

Bankers, by law and temperament, are not investors. Risk and reward typically have a direct relationship - the higher the risk, the higher the reward. Investors decide to put money into an enterprise without guarantees they will get their money back, let alone a return, because the rewards can be large if the business succeeds . However, lenders such as banks don't have the same lucrative potential. Even if the money lent is the catalyst for putting a firm hold on the fast track to success, the most the banker can expect to get back is the capital (plus interest) in timely payments. That is one reason why bankers and entrepreneurs so often clash. The entrepreneur asks the banker to take an investors risk, while the banker's position is that he can only take credit risk because of the limited potential payoff. Until the banker and entrepreneur speak on the same wavelength and understand each other's vantage point, a good relationship can't exist.

Communication - or lack thereof - is probably the greatest area of weakness between entrepreneurs and bankers. When the news is bad, owners tend to shut down lines of communication, thinking the banker will be upset. While the banker may understandably be concerned, his/her reaction will be far less negative than if he/she is not told what is going on. Nothing upsets a banker more than surprises. Not all weaknesses rest with the business owner, however. Bankers change jobs more frequently than politicians stereotypically change their minds, so many may be unfamiliar with their customers and wary of extending credit even when the company is deserving. Relationships, whether personal or business, are always challenging. There are certain things an entrepreneur can do, however, to help create a climate that is conducive to fostering a productive, long-lasting relationship with a banker.

Creating a Good Relationship

Clear, frequent, open lines of communication are a necessary component of a strong owner-banker relationship. Owners and bankers should communicate at least quarterly, urges Dave Brown, senior vice president at Key Bank in Utah; he speaks to some clients every week. Bankers usually require quarterly financials with a major review once a year. If a loan is based on inventory or accounts receivable, monthly financials may be needed. There is more involved in communication than mailing out financials, however. Invite your banker to tour your facilities, recommends Scott Clark, author of Unleashing the Hidden Power of Your Growing Business. And, he warns, don't extend the invitation just before you ask for a loan, as that will arouse suspicion. Be sure to call your banker when something important occurs, such as gaining a major account or a major competitor. Put your comments down in writing to provide ammunition in case the banker's boss questions why something happened. It's also valuable in the event your banker moves on, as the replacement can quickly become familiar with your situation if your file is complete and up-to-date.

Identical to any relationship based on trust, this one requires time. Paul D. Brawner likens it to a winning football team that relies on its running game. "A relationship is like three yards and a cloud of dust," he says about the strategy that slowly but eventually results in a touchdown. "A banking relationship needs to be nurtured day in and day out, not once a year." Brawner is senior vice president of Huntington National Bank in Columbus, Ohio, and former chair of the American Banker's Association Small Business Unit. The adage "it's better to give than to receive" is true with a banking relationship. Don't ask for favors at the beginning. First give the bank your business and even try to bring in other accounts, which will create good will you can capitalize on later.

Don't Tell Them Everything

The banker can be a friend, ally, and consultant, but not someone in whom you necessarily confide, specifically about things that don't directly affect the banker's interests. If your marriage goes on the rocks, for example, don't rush to tell your banker. If something bad happens in your business, try to determine the cause and develop a plan for remedying the situation before talking to your banker. No business or business owner is perfect, so it's unrealistic for a banker to want to know everything that is happening. "We all have acne in a corporate sense. The banker doesn't need to be our business confessor," Bill Byrne notes. Pivotal to establishing a good banking relationship is finding the right banker. First, look at a bank's financials. A troubled or insolvent bank isn't going to do you much good, no matter how carefully you nurture a relationship with one of its bankers. Deal with officers as high up in the organization as possible, since upper management tends not to change jobs as frequently as lower-level employees. Many small and medium-sized banks cater specifically to small businesses, while some larger institutions have small business divisions. These banks tend to have bankers who are tuned into small business issues - exactly the type of banker you want. Just as you wouldn't hire the first applicant you interview for a secretarial position, why select the first banker you speak to? Interview several. Elizabeth Bradshaw, president of Ginny's Printing and Copying in Austin, Texas, says her favorite banker has "a great bedside manner." The emotional component in a relationship makes it important to find a banker with whom you are comfortable. When you have established and nurtured a good relationship with a banker, you can count on a brighter future for your business.

What a Banker Wants To Know

To maintain a good relationship with a banker, you must demonstrate professionalism and competence, says Henry W. Gardner, vice president at Bank One in Salt Lake City, Utah. According to Gardner, when a business owner asks for a loan, this is what a banker wants to know:

• How much money do you want to borrow?
• Why do you want the money, and how will it be used?
• What is the primary source that will generate the funds to repay the loan, such as selling a building, selling inventory, or increased business?
• What is the secondary source of repayment, such as liquidation of equipment or injection of additional capital by the firm's principal?
• How will the loan be secured (collateral)?
• Who will guarantee the loan? (The owner should be taking more risk than the banker.)

The 3 Ts of a Good Banking Relationship

Nearly everyone looking for a loan learns the five Cs of credit, which are: character (how trustworthy you are), capacity (your financial strength), capital (the amount of your own money invested in the business), collateral (assets available to back up the loan), and conditions (the state of the economy and your industry). Mitch Hurley, vice president and manager at First Security Bank of Utah, says that in addition to the five Cs, banking relationships are built on the three Ts:

Talk: For a relationship to thrive, the business owner needs to talk - communicate - regularly with the banker.The talk must be frank and open, even when reporting a negative development.

Time: A relationship takes time to grow. Don't rush it, and don't expect it to bear fruit immediately. Like friendships, a good banker relationship will age well over the course of its duration.

Trust: With honest, frequent communication and time, trust develops, which is "the foundation of the relationship," emphasizes Hurley. When trust exists on both sides, the relationship has the crucial component to make it a lasting one.

How To Write A Loan Proposal

Approval of your loan request depends on how well you present yourself, your business, and your financial needs. Remember, lenders want to make loans, but they must make loans they know will be repaid. The best way to improve your chances of obtaining a loan is to prepare a written proposal. A well-written loan proposal contains:

General Information

• Business name, names of principals, Social Security number for each principal, and the business address
• Purpose of the loan - exactly what the loan will be used for and why it is needed
• Amount required - the exact amount you need to achieve your purpose

Business Description

• History and nature of the business - details of what kind of business it is, its age, number of employees and current business assets
• Ownership structure - details on your company's legal structure

Management Profile

• Short statement on each principal in your business -provide background, education experience, skills, and accomplishments

Market Information

• Clear definition your company's products as well as your markets
• Identify your competition and explain how your business competes in the marketplace
• Profile your customers and explain how your business can satisfy their needs

Financial Information

• Financial statements - provide balance sheets and income statements for the past three years. If you are starting out, provide a projected balance sheet and income statement.
• Personal financial statements on yourself and other principal owners of the business
• Collateral you are willing to pledge as security for the loan

Related Information:

Read the SBA's "How to Prepare a Loan Package"

Finding financing to start and expand a company is an age-old problem, and most entrepreneurs find it to be one of the greatest struggles they face.

While the process can be time consuming, frustrating, and intimidating, if you are informed and well prepared, your chances of securing the needed capital are greatly increased.

In putting together a loan package, ask yourself the following basic questions. The answers to them and the information provided to back them up are essential to the lending decision and its speed.

What is the specific purpose of the loan?

Your lender or investor will review your financial requirements among three types of capital acquisition:

• Working Capital: Used to meet fluctuating needs that will be repaid during the company's next full operating cycle, generally one year.
• Growth Capital: Used to meet needs that will be repaid with profits over a several-year period (usually not more than seven years). If seeking growth capital, you will be expected to show how the money will be used to increase profits sufficiently to repay the loan in the agreed-upon time frame.
• Equity Capital: Used to meet permanent needs. Equity capital must be raised from investors who will take a risk in return for some combination of dividend returns, capital gains, or a specific share of the business .

What amount of financing will support my needs?

Do not ask, how much can I borrow? Have enough existing capital so that, augmented by the loan, the business can operate on a sound financial basis. For new businesses, this includes sufficient resources to withstand startup expenses and the initial operating phase, during which losses are likely to occur. Be able to inject between one-third and one-half of the total capital required. If you plan to borrow equity from friends or relatives, determine what the repayment terms will be.

When and for how long will I need these funds?

Most of today's lenders are providing growth capital in the form of asset-based loans, i.e., loans for acquiring land, buildings, or equipment which can be used as security. While the majority of these loans carry terms of three to seven years, some may extend over longer periods. For financial planning purposes, the entrepreneur should keep in mind that longer loan periods incur larger overall interest costs.

How will I generate sufficient cash flow to repay the loan?

Consider the situation from the lender's point of view: if you were asked to lend someone money, you'd want assurance of being paid back in full, and in a timely manner.

What collateral can be utilized (if applicable)?

Estimate its value, and be ready to provide supporting appraisals.

Will the owners provide personal guarantees?

Having a comprehensive and well thought-out business plan is essential in obtaining financing. In fact, without one, even stepping into the bank is pointless. To lenders or potential investors, a plan not only provides information and reveals your evaluation of your venture's feasibility, but also reflects your management abilities. An analytical, objective business plan convinces lenders you are cautious, conservative, and capable. One that is poorly researched, makes unsupported assumptions, or draws unfounded conclusions shows you are inexperienced and - in their eyes - reckless. Lenders receive so many proposals that they cannot afford to spend much time evaluating each business plan. That means your plan has only a few minutes to make a good impression, and must therefore speak for itself as a sales tool. One key is to make sure your business plan is as thorough and accurate as possible and that you can back up all your claims with facts.

The business plan should include the following:

Executive Summary

This portion concisely summarizes the key elements of the business plan which follow, and should convince the lender that it is worthwhile to review the plan in detail. Include information about the loan being sought in terms of amount, purpose, duration, and how you intend to pay it back.

Company History/Organization/ Management

Describe the historical development of the business, including legal form of organization, significant changes, subsidiaries,  degree of ownership, and the principals roles they played in the firm's foundation. Detail their experience and the management and decision-making structure. Also include an organizational chart and discuss other key personnel and their responsibilities.

Product/Service

Detail the present or planned product or service lines, including their relative importance (with sales projections, if possible), evaluation (use, quality, performance), competitive advantage, and demand.

Market Analysis/Marketing Strategy

You should be able to estimate how many customers you will have and how near they are to your location, as well as their age, family structure, lifestyle, disposable income, and purchasing habits. Explain why your product/service is desirable to them, the scope of your firm's marketing and selling activities (including pricing policy), and what share of the market you will realistically be able to capture based on the industry analysis that follows.

Industry Analysis (Competition)

It is equally important to know about your field and have a keen sense of the competition. List your major competitors by name and describe how closely located they are, what products/services they provide, what they do better/worse, and how profitable/successful they are. Also elaborate on the industry itself, including an industry outlook, principal markets, industry size, and major characteristics. Describe the effects of any major social, economic, technological, or regulatory trends.

Production/Operating Plan

 Explain how the firm will perform production or delivery of service in terms of physical facilities, suppliers, labor supply (current and planned), technologies/skills required, manufacturing process (if applicable), and cost breakdown for materials, labor, and overhead. According to George Solomon, Director of Education and Resource Management for the SBA's Business Development Office, the following items will also be needed to support a loan request:

Sources and Uses of Funds Statement

The potential lender will require a statement of how you intend to disperse the loan funds; back up your statement with supporting data. For example, buying a commercial building will require a preliminary title report, an appraisal, an escrow, and title insurance, among other documents.

Cash Flow Statement (Budget)

These documents (used for internal planning) project what your business means in terms of dollars and show cash inflow and outflow over a period of time. If you've been in business for some time, worksheets can be compiled from the actual figures of income and expenses in previous years combined with projected changes for the next period. If starting a new business, you will have to project your financial needs and disbursements.

Three-Year Income Projection

This pro-forma projection only includes income and deductible expenses, while the cash flow statement (above) includes all sources of cash and monies to be paid out. Find out the lender's specific requirements as to whether income and expenses should be projected on an annual or monthly basis.

Breakeven Analysis

The breakeven point is the point at which a company's expenses exactly match its sales or service volume, and the firm neither makes a profit nor incurs a loss. It can be calculated in either mathematical or graph form and expressed in total dollars or revenue exactly offset by total expenses.

Balance Sheet

This financial statement, usually prepared at the close of an accounting period, shows the financial condition of the business as of a fixed date. By regularly preparing it, you will be able to identify and analyze trends in the financial strength of your firm and thus implement timely modifications.

Income Statement

In contrast to the balance sheet, this statement shows what has happened to your venture over a period of time; it is an excellent tool for assessing your business. It enables you to identify weaknesses in your operation (such as the timing of an advertising campaign that did not bolster sales as anticipated) and devise more effective ways to run your firm and thereby increase profits. Similarly, you might examine your income statement to see which months have the heaviest sales volume and plan inventory accordingly. Comparison of income statements from several years will provide an excellent picture of the trends in your business. As a sole proprietor or principal of a corporation, you may be asked to back up your business loan with personal assets (your house, stocks, or bonds). If you're in a partnership, a personal guarantee must be signed by all principals for repayment of the loan.It is important to emphasize that businesses with several years of successful operation will find it far easier to obtain financing than startups, as lenders will be much more receptive and confident in your ability to repay a loan at that point. In fact, without a strong business plan with realistic expectations and forecasts, managerial experience, and collateral, it may be impossible for a new business to get a loan at all. Lenders are always leery of extending financing to new ventures or unproven management teams, as they represent a high risk of default. This doesn't mean you can't get a loan as a startup, but rather that you will have to compensate for the lack of a track record by being strong and well-prepared in other areas. Demonstrate by your enthusiasm and the thoroughness of your business plan that you are committed to the venture and that it will succeed. After all, when applying for a loan, you're selling both yourself and your business.

Scott McCrea, a consultant with Deloitte & Touche's San Francisco office, advises entrepreneurs to develop and nurture a relationship once credit is granted. He suggests keeping the lender updated on the company's progress and staying abreast of the lender's other products and services that may apply to your business. As the firm grows, you may need to restructure or enhance your credit, and it only makes sense to turn to someone already familiar with and confident in your business acumen.

How Banks Evaluate Loan Requests

In putting together the best possible package to secure a business loan, it's important to know what happens after you leave the bank and the lending officer evaluates your request. First, a word of warning from Roger Bel Air, author of How to Borrow Money from a Banker and national lecturer: Banks are in business to lend money and get it repaid - with interest. That's their number one priority. Several key factors are contributing to heightened cautiousness on their part, including concern about a greater number of business failures and losses in the face of an economic recession and tougher loan examination policies by federal bank regulators as a result of the savings and loan crisis. "A banker's career is based on not making mistakes," Bel Air stresses. "And determining whether or not the bank will be repaid - the bottom line in any loan decision - is subjective. Beyond the facts and figures alone, banks want to see that the applicant has thoroughly reviewed his options, laid the necessary groundwork for borrowing, and prepared a clearly-written and well-organized loan application. This is particularly true in today's credit-tight market as lending officers feel a tightening of the screws from regulators, and uncertainty about the future."

Another advantage of preparing an effectively organized loan application (including the all-important business plan) is that it will significantly decrease the time spent waiting for an answer. According to John Nelson III, SCORE counselor in Rhode Island and vice president of a major U.S. bank, "in about 80 percent of the cases, the formal request is not complete." Much of the time spent in approving a loan can be traced to the banker having to ask the potential borrower for more information or for clarification of the information that has already been submitted. In evaluating loan applications, the three Cs of credit are taken into account - character, capacity, and collateral.

Character is actually a check on your financial status and personal credit history, including your previous loan payment record. The theory is that people are creatures of habit - if you have repaid a loan on time before, you will repay this one as well. Conversely, if you have defaulted on a previous loan, the danger is that you'll tend to default again. Also considered is experience in the type of business you are trying to finance, including level of responsibility, education, and business management training. Lenders are particularly concerned that potential borrowers have a solid understanding of financial record keeping, business credit, the importance of collecting accounts receivable, inventory control and turnover, and marketing their product or service. If your prior business experience is not relevant to your current venture (for example, if your career has been in the corporate world, and you want to start a restaurant), banks will be leery about your ability to run the new endeavor successfully and thus repay the loan.

Prudent bankers have always looked first to the cash flow of the business as the way the loan will be repaid, which underlines the importance of preparing a cash flow statement with future cash flow projections before presenting your loan request. Doing so indicates to the lender that you are knowledgeable about the cash coming into your business, and are therefore better able to avoid a cash shortage that would jeopardize making monthly payments.

While cash flow is the primary source of loan repayment, lenders will want a backup or secondary source as an exit or last resort, should your business not prove profitable. Collateral - defined as "anything of value used as security for repayment of a debt or performance of a contract" - can be real estate, stocks and bonds, savings account passbooks, equipment, accounts receivable, or the cash value of life insurance policies. Psychologically, lenders feel that borrowers have more interest in repaying the loan if they know that failure to do so will result in the lender taking possession of whatever has been put up for collateral. A lender will also try to obtain personal guarantees so that if you default on the loan, the institution has access to your personal assets. It's important to note that these days, in the wake of severe economic downturns such as that experienced in the Southwest in the mid-1980s, collateral doesn't carry the weight it used to. As the president of an Oklahoma bank stated, "In Oklahoma City, you can buy a building today for what it cost to rent one eight or nine years ago." So banks are likely to require more collateral than was previously the case, and evaluate it based on market - rather than replacement - value. Companies without enough collateral to pledge will have to scale back their borrowing needs and make do with less.

One final tip is not to forget "relationship banking." Once a relationship has been established and you've explained your business operations and anticipated needs, it becomes far easier to approach a banker when a loan is needed. This familiarity will make you more credible than a customer who has not taken the time to introduce himself. Be sure to stay close to your banker; be open and honest about major changes and significant events, whether good or bad.. As your lending officer has to tell your story to other people in the organization (including his superiors), nothing can jinx the relationship faster than a lack of candor. Feeding bankers regular information is, of course, time-consuming when you have a company to run. However, it's all part of building credibility and trust, and will enable you to use your banker's knowledge to help ensure the continued success of your business. Read the SBA's "Never Take No for an Answer - (When the Bank Says No)"

Never Take No for an Answer

Does this sound familiar? You applied for a loan and the bank officer responded with the dreaded words, "I'm sorry, but..." and turned it down. Admittedly an unhappy scenario, it is not a unique one and happens to many businesses at some point. Fortunately, you can turn what would otherwise be a negative rejection into a positive learning experience by taking steps to find out why the final answer was "no."

Personalize the Process

It helps to first become familiar with how banks actually process loan requests. If special circumstances apply to your business, describe them to the loan officer and ask what additional information might be presented to help your case. Openness about the particulars of your financial situation can help bankers look past the impersonal statistics. If anomalies exist in your business or credit history, point out and explain them before making the credit application. This personalizes the entire process and helps to establish trust between bank officer and business. It is commonly said that bankers don't like surprises, and one of the worst surprises is discovering bad credit.

Why You Didn't Get the Loan

Banks most often deny credit because a business has:

• Bad credit. As noted above, a clean credit record is crucial in both business and personal finances. Anything else sends the bank warning signals about your likeliness of repaying the loan in a timely fashion - or at all.
• High debt-to-equity ratio. A typical ratio is three-to-one. Banks also look at other standard ratios for credit worthiness. In special circumstances, businesses that do not meet the usual standards may still be considered.
• Insufficient collateral. This is common for startup businesses that lack collateral or significant assets to pay back the loan if the company should experience hard times .

Other reasons may also lead the bank to reject a loan application. If yours is turned down, it behooves you to find out why the loan officer thought the proposition was too risky. The bank may even have suggestions on how to make your presentation more persuasive.

What Banks and The Government are Doing

Banks acknowledge the difficulty in getting credit, especially for small, startup, and special sector businesses. Through new programs, government loan guarantees, and private initiatives, however, banks are beginning to increase their loans to these segments. Under the Community Reinvestment Act of 1977, for example, the government began asking banks to make credit more available to small business owners in their own communities. Due to recent government pressure to take action under this Act, some banks have developed programs specifically tailored to the needs of small enterprises. First Interstate Bank, for instance, recently introduced its Community-Based Lending division. As Vice President Art Resendez explains, the task is to get the word out to loan officers about the Small Business Administration's range of loan guarantee programs.

The First Interstate division also works with special case loans. "Often we get loan applications that a standard analysis would tell us to reject," says Resendez. "But because Community-Based Lending recognizes and understands typical small business problems, often we can work with the SBA guarantee program to approve the loan." Resendez also notes a relatively recent development for entrepreneurial financing - the Southern California Business Development Corporation. This is a joint project funded with $10 million from 24 banks to aid small companies in the state. Union Bank, with 200 branches throughout California, has 70 commercial lending locations - or one in each community serviced - to assist business customers. According to Small Business Program Manager Larry Klaustermeier, "our experienced credit people sit down with each individual customer to understand their specific needs and circumstances. Our small business portfolio currently totals more than $1 billion. "We also have a Women & Minority Assistance Program that, through a very hands-on process, deals with loans in the $20,000 range," continues Klaustermeier. "But the relationships we form extend beyond commercial loans alone. We try to create a total relationship with our customers, and can package everything from credit cards to residential and commercial real estate loans and trust accounts. This is part of our commitment to do as much as we can for the communities we serve."

Beyond Banks for Funds

Commercial banks or savings and loan (S&L) institutions are not the only source of credit. Other sources sometimes take on riskier propositions, albeit at a higher interest rate and possibly with a stake in the company. They may also be able to offer more flexible payback arrangements or alternative revolving loans that regular banks cannot. Commercial finance companies typically offer revolving loans with a credit line based on accounts receivable and inventory. This is a flexible loan that allows the borrower to repay or borrow money daily, depending on the company's cash flow needs. Interest rates are usually one to four percent higher than on bank loans, but because the borrower can pay the loan as soon as a payment is received, interest is only charged on money actually used. Evolving from a past reputation for granting only conservative loans, insurance companies have now moved into all areas of lending except short-term revolving debt. Most frequently they offer seven- to 15-year loans at an interest rate based on the Treasury rate plus a risk premium. Many insurance companies are also interested in buying into growing firms to offset inflation worries on their fixed-return investments. Venture capital firms may be able to provide growth money for companies in a period of expansion. Although traditionally focused on larger enterprises, venture capital firms have been increasingly willing to finance smaller startup companies. Some firms require voting control before agreeing to finance a company, and most prefer to deal in equity securities or subordinated debt that is convertible to equity. The interest rate required is very high, generally from 35 to 50 percent. Employee Stock Ownership Plans (ESOPs) allow a company to keep cash on hand while contributing to employees' retirement. Instead of contributing cash to the retirement fund, the business contributes stock. Not only can this have tax advantages, but employees may find that ESOPs provide more incentive to improve job performance because of their personal stake in the firm's success.

How Your Loan Request Will Be Reviewed

When reviewing a loan request, the lender is primarily concerned about repayment. To help determine its likelihood, many loan officers will order a copy of your business credit report from a credit reporting agency. Therefore, you should work with these agencies to make sure they present an accurate picture of your business. Using the credit report and the information you have provided, the lending officer will consider the following issues: Have you invested savings or personal equity in your business totaling at least 25 percent to 50 percent of the loan you are requesting? Remember, no lender or investor will finance 100 percent of your business.

• Do you have a sound record of credit-worthiness as indicated by your credit report, work history, and letters of recommendation? This is very important.
• Do you have sufficient experience and training to operate a successful business?
• Have you prepared a loan proposal and business plan that demonstrate your understanding of and commitment to the success of the business?
• Does the business have sufficient cash flow to make the monthly payments?
• SBA Financial Programs

The SBA offers a variety of financing options for small businesses. Whether you are looking for a long-term loan for machinery and equipment, a general working capital loan, a revolving line of credit, or a micro loan, the SBA has a financing program to fit your needs.

Small Business Investment Companies (SBIC) Program

Small Business Investment Companies (SBICs), which are licensed and regulated by the SBA, are privately owned and managed investment firms that provide venture capital and startup financing to small businesses. The SBA link will take you to SBA's Investment Division's home page, where you will also find reference to the Small Business Investment Act.

Federal Grant Resources

A list of federal resources that could give your business a grant: www.business.gov/phases/launching/finance_startup/grant_resources.html. The U.S. Small Business Administration does not offer grants to start or expand small businesses, though it does offer a wide variety of loan programs. While the SBA does offer some grant programs, these are generally designed to expand and enhance organizations that provide small business management, technical, or financial assistance. These grants generally support non-profit organizations, intermediary lending institutions, and state and local governments. (See Federal and State Technology Partnership Program, www.grants.gov and visit New Markets Venture Capital Program.

13 CFR 143 Uniform administrative requirements for grants and cooperative agreements to state and local governments. http://www.sba.gov/library/cfrs/13cfr143.html

The Federal Commons  (Now points to Grants.gov) an Internet grants management portal serving the grantee organization community. http://www.grants.gov/

The Catalog of Federal Domestic Assistance Link to resources about the Federal Domestic Assistance grants. http://12.46.245.173/cfda/cfda.html

Inter-Agency Electronic Grants Committee - IAEGC Link to the IAEGC's page, which helps different agencies standardize and exchange their grant programs. http://www.iaegc.gov/

Department of Commerce's Federal Grants Page Link to the Department of Commerce's page of FAQs regarding federal grants. http://www.osec.doc.gov/osdbu/FAQ.htm

E-GRANTS, The Department of Education's (ED) portal site for electronic grants Link to the Department of Education's E-Grants main webpage. http://gapsweb.ed.gov/egWelcome.asp

Department of Health Resources and Services Administration (HRSA) - Grants and Contracts Link to the Office for the Advancement of Telehealth's grant page. http://telehealth.hrsa.gov/grants.htm

Department of Justice - Ten Grants Link to the Department of Justice's page with grant opportunities. http://www.usdoj.gov/10grants/

Department of Labor (DOL) - Employment and Training Administration - Welfare-to-Work - Grants listing by State: Link to the Department of Labor's Employment and Training Administration's page with various grant opportunities. http://www.doleta.gov/

Department of Transportation - Federal Highway Administration - Universities and Grants Programs Link to the DOT's Universities and Grants Programs main page. http://www.nhi.fhwa.dot.gov/interns.asp

HRSA - Office of Rural Health Policy - Grants Link to the Department of Health and Human Services' Rural Health Policy's funding page. http://ruralhealth.hrsa.gov/funding/

Department of Labor - Grant and Contract Information Link to the Department of Labor's page on grant and contract information. http://www.dol.gov/oasam/grants/main.htm

Department of Transportation (DOT) - Hazardous Materials Emergency Preparedness (HMEP) Grant program Link to the Hazardous Materials Safety's Hazardous Materials Emergency Preparedness' grant program page. http://hazmat.dot.gov/training/state/hmep/hmep.htm

DOT's State Highway Program Grants Link to the TEA-21 State Highway Safety Programs' page. http://www.nhtsa.dot.gov/nhtsa/whatsup/tea21/tea21programs/

EPA's Grants Information Overview  Link to the EPA's Grants Information and Control System page. http://www.epa.gov/enviro/html/gics/

EPA's 2001 Environmental Research Grant Announcements Link to the EPA's National Center for Environmental Research funding and opportunities page. http://es.epa.gov/ncer/rfa/

EPA's Region IV Grants and Financial Assistance Link to the EPA's page on region 4 grants and financial assistance. http://www.epa.gov/region4/grants/

Housing and Urban Development (HUD) - Grants Link to HUD's grants page. http://www.hud.gov/grants/index.cfm

*HUD - Funding Announcements Link to HUD's 2003 funding announcements list. http://www.hud.gov/library/bookshelf11/fundanoc2003.cfm

National Cancer Institute - Research Projects Grants Link to the National Cancer Institute's page on the plan and budget for fiscal year 2006. http://2001.cancer.gov/

National Endowment for the Humanities - Grants and Applications Link to the National Endowment for the Humanities' Apply for a Grant page. http://www.neh.gov/grants/

GrantsNet - U.S. Department of Health and Human Services Link to the Department of Health and Human Services' grant page. http://www.hhs.gov/grantsnet/

NIH - Grants and Funding Opportunities Link to the National Institutes of Health's page on grants and funding opportunities. http://grants.nih.gov/grants/index.cfm

Native American Programs: Link to Office of Native American Program's page on housing opportunities.

National Oceanic and Atmospheric Administration (NOAA) - Business and Grants Opportunities Link to NOAA's page on business and grant opportunities. http://www.noaa.gov/business.html

NOAA Sponsored - National Sea Grant Link to NOAA's page on National Sea Grants. http://www.business.gov/cgi-bin/outsideurl.cgi?url=http://www.nsgo.seagrant.org/

NOAA's National Marine Fisheries Service - Alaska Region - Grants Information Link to NOAA's National Marines Fisheries Service grants information page. http://www.fakr.noaa.gov/omi/grants/default.htm

National Park Service (NPS) - Grants and Tax Credits Link to the National Park Service's page on grants and tax credits. http://www2.cr.nps.gov/grants.htm

National Science Foundation (NSF) - Overview of Grants and Awards Link to the NSF's page on funding, grants, and awards. http://www.nsf.gov/home/grants.htm

Office of Electronic Commerce Grants Link to E-gov's homepage, including grants. http://www.whitehouse.gov/omb/egov/

Office of Naval Research - Grants, Contracts, and Acquisition Link to the Office of Naval Research's page on grants, contracts, and acquisitions. http://www.business.gov/cgi-bin/outsideurl.cgi?url=http://www.onr.navy.mil/02/

Basic Requirements

The basic requirements for a business to receive an SBA loan: http://www.business.gov/phases/launching/finance_startup/basic_requirements.html

What Will I Need to be Considered for SBA Loan Assistance?

Even though the SBA qualifying standards are more flexible than other types of loans, lenders will generally ask for certain information before deciding to use an SBA loan program. Generally, a business will need the following documentation to evaluate your loan request:

• Business profile A document describing type of business, annual sales, number of employees, length of time in business, and ownership.
• Loan request- A description of how loan funds will be used; should include purpose, amount, and type of loan.
• Collateral- Description of collateral offered to secure the loan, including equity in the business, borrowed funds, and available cash.
• Business financial statements- Complete financial statements for the past three years and current interim financial statements.
• Personal financial statements- Statements of owners, partners, officers, and stockholders owning 20% or more of the business.

The strength and accuracy of your financial statements will be the primary basis for the lending decision, so be sure that yours are carefully prepared and up-to-date. The most important documents in your financial statements are:

• Balance sheets from the last three fiscal year-ends.
• Income statements revealing your business profits or losses for the last three years.
• Cash flow projections indicating how much cash you expect to generate to repay the loan.
• Accounts receivable and payable aging, breaking your receivables and payables in to 30, 60, 90, and past 90-day old categories.
• Personal financial statements from you and your business partners listing all personal assets, liabilities, and monthly payments as well as your personal tax returns for the past three years.

Eligibility Size Standards

Required size standards for a business to receive an SBA loan. http://www.business.gov/phases/launching/finance_startup/eligibility_size.html

What Will I Need to be Considered for SBA Loan Assistance?

SBA defines a small business as one that is independently owned, operated, and not dominant in its field. A small business must also meet the employment or sales standards developed by the SBA, which are based on the North American Industry Classification System (NAICS). In general, the following criteria are used by the SBA to determine if a concern qualifies as a small business and is eligible for SBA loan assistance:

• Wholesale - not more than 100 employees
• Retail or Service - Average (3 year) annual sales or receipts of not more than $6 million to $29 million, depending on business type
• Manufacturing - Generally not more than 500 employees, but in some cases up to 1,500 employees
• Construction - Average (3 year) annual sales or receipts of not more than $12 million to $28.5 million, depending on the specific business type

Learn More Specific About Size Standards and Eligibility: http://www.sba.gov/size/

Financial Statements

A basic guide to understanding financial statements: http://www.business.gov/topics/finances/financial_statements/financial_statement.html. Understanding financial statements is critically important to the success of a small business.  Financial statements can be used as a roadmap on your business journey to economic success. Using numbers as navigation aids can steer you in the right direction and help you avoid costly breakdowns. Most business owners don't realize that financial statements have a value that goes far beyond their use to prepare tax returns or loan applications. Review the attached, easy-to-follow guide to help you better understand financial statements.    

Understanding Financial Statements

The primary financial statements are represented in the balance sheet and income statement. Learn more about these statements:

Balance Sheet

Income Statement- Known also as the profit and loss statement, the income statement shows all income and expense accounts over a period of time; that is, it shows how profitable the business is. This financial statement shows what how much money the company will make after all expenses are accounted for. Remember that an income statement does not reveal hidden problems like insufficient cash flow problems. Income statements are read from top to bottom and represent earnings and expenses over a period of time.

Prepare a balance sheet, income statement, and/or cash flow statement for your business. Use SBA's Template Forms to build your own financial statements.

Balance Sheet

Learn how to create a proper balance sheet for your business. http://www.business.gov/topics/finances/financial_statements/balance_sheet.html. The balance sheet is a snapshot of the company's financial standing at a point in time. The balance sheet shows the company's financial position, what it owns (assets) and what it owes (liabilities and net worth). The bottom line of a balance sheet must always balance (i.e. assets = liabilities + net worth). The individual elements of a balance sheet change from day to day and reflect the activities of the company. Analyzing how the balance sheet changes over time will reveal important information about the company's business trends. In this lesson we'll discover how you can monitor your ability to collect revenues, how well you manage your inventory, and even assess your ability to satisfy creditors and stockholders. Liabilities and net worth on the balance sheet represent the company's sources of funds. Liabilities and net worth are composed of creditors and investors who have provided cash or its equivalent to the company in the past. As a source of funds, they enable the company to continue in business or expand operations. If creditors and investors are unhappy and distrustful, the company's chances of survival are limited. Assets, on the other hand, represent the company's use of funds. The company uses cash or other funds provided by the creditor/investor to acquire assets. Assets include all the things of value that are owned or due to the business. Liabilities represent a company's obligations to creditors while net worth represents the owner's investment in the company. In reality, both creditors and owners are investors in the company; the only difference is the degree of nervousness and the time frame in which they expect repayment.

Assets

As noted previously, anything of value that is owned or due to the business is included under the assets section of the balance sheet. Assets are shown at net book or net realizable value (more on this later), but appreciated values are not generally considered.

Current Assets

Current assets are those which mature in less than one year. They are the sum of the following categories:

• Cash
• Accounts Receivable (A/R)
• Inventory (Inv)
• Notes Receivable (N/R)
• Prepaid Expenses
• Other Current Assets

Cash

Cash is the only game in town. Cash pays bills and obligations; inventory, receivables, land, building, machinery, and equipment do not, even though they can be sold for cash and then used to pay bills. If cash is inadequate or improperly managed, the company may become insolvent and be forced into bankruptcy. Include all checking, money market, and short term savings accounts under cash.

Accounts Receivable (A/R)

Accounts receivable are dollars due from customers. They arise as a result of the process of selling inventory or services on terms that allow delivery prior to the collection of cash. Inventory is sold and shipped, an invoice is sent to the customer, and later cash is collected. The receivable exists for the time period between the selling of the inventory and the receipt of cash Receivables are proportional to sales; as sales rise, the investment you must make in receivables also rises.

Inventory

Inventory consists of the goods and materials a company purchases to re-sell at a profit. In the process, sales and receivables are generated. The company purchases raw material inventory that is processed (aka work in process inventory) to be sold as finished goods inventory. For a company that sells a product, inventory is often the first use of cash. Purchasing inventory to be sold at a profit is the first step in the profit-making cycle (operating cycle), as illustrated previously. Selling inventory does not bring cash back into the company - it creates a receivable. Only after a time lag equal to the receivable's collection period will cash return to the company; thus it is very important that the level of inventory be well-managed so that the business does not keep too much cash tied up in inventory, as this will reduce profits. At the same time, a company must keep sufficient inventory on hand to prevent stockouts (having nothing to sell) because this too will erode profits and may result in the loss of customers.

Notes Receivable (N/R)

N/R is a receivable due the company in the form of a promissory note, arising because the company made a loan. Making loans is the business of banks, not operating businesses, particularly small companies with limited financial resources. Notes receivable is probably a note due from one of three sources:

• Customers
• Employee
• Officers of the company

Customer notes receivable is when the customer who borrowed from the company probably borrowed because they could not meet the accounts receivable terms. If the customer fails to pay the invoice according to the agreed-upon payment terms, the customer's obligation may be converted to a promissory note. Employee notes receivable may be for legitimate reasons, such as a down payment on a home, but the company is neither a charity nor a bank. If the company wants to help the employee, it can co-sign on the loan advanced by a bank. An officer or owner borrowing from the company is the worst form of notes receivable. If an officer takes money from the company, it should be declared as a dividend or withdrawal and reflected as a reduction in net worth. Treating it in any other way leads to possible manipulation of the company's stated net worth, and banks and other lending institutions frown greatly upon it.

Other Current Assets

Other current assets consist of prepaid expenses and other miscellaneous current assets.

Fixed Assets

Fixed assets represent the use of cash to purchase physical assets whose life exceeds one year. They include assets such as:

• Land
• Buildings
• Machinery and Equipment
• Furniture and Fixtures
• Leasehold Improvements

Intangibles

Intangibles represent the use of cash to purchase assets with an undetermined life; they may never mature into cash. For most analysis purposes, intangibles are ignored as assets and are deducted from net worth because their value is difficult to determine. Intangibles consist of assets such as:

• Research and Development
• Patents
• Market Research
• Goodwill
• Organizational Expense

In several respects, intangibles are similar to prepaid expenses - the use of cash to purchase a benefit which will be expensed at a future date. Intangibles, like fixed assets, are recouped through incremental annual charges (amortization) against income. Standard accounting procedures require most intangibles to be expensed as purchased and never capitalized (put on the balance sheet). An exception to this is purchased patents that may be amortized over the life of the patent.

Other Assets

Other assets consist of miscellaneous accounts such as deposits and long-term notes receivable from third parties; they are turned into cash when the asset is sold or the note is repaid. Total assets represent the sum of all assets owned by or due to the business.

Liabilities and Net Worth

Liabilities and net worth are sources of cash listed in descending order from the most nervous and current creditors to mature obligations (current liabilities) to the least nervous and never due obligations (net worth). There are two sources of funds: lender-investor and owner-investor. Lender-investor consists of trade suppliers, employees, tax authorities, and financial institutions. Owner-investor consists of stockholders and principals who loan cash to the business. Both lender-investor and owner-investor have invested cash or its equivalent into the company; the only difference between the investors is the maturity date of their obligations and the degree of their nervousness.

Current Liabilities

Current liabilities are those obligations that will mature and must be paid within 12 months. These are liabilities that can create a company's insolvency if cash is inadequate. A happy and satisfied set of current creditors is a healthy and important source of credit for short-term uses of cash (inventory and receivables). An unhappy and dissatisfied set of current creditors can threaten the survival of the company. The best way to keep these creditors happy is to keep their obligations current. Current liabilities consist of the following obligation accounts:

• Accounts Payable - Trade (A/P)
• Accrued Expenses
• Notes Payable - Bank (N/P Bank)
• Notes Payable - Other (N/P Other)
• Current Portion of Long-term Debt

Proper matching of sources and uses of funds requires that short-term (current) liabilities must be used only to purchase short-term assets (inventory and receivables).

Notes Payable

Notes payable are obligations in the form of promissory notes with short-term maturity dates of less than 12 months. Often, they are demand notes (payable upon demand); other times they have specific maturity dates (30, 60, 90, 180, 270, and 360-day maturities are typical). The notes payable always include only the principal amount of the debt. Any interest owed is listed under accruals.

The proceeds of notes payable should be used to finance current assets (inventory and receivables). The use of funds must be short-term so that the asset matures into cash prior to the obligation's maturation. Proper matching would indicate borrowing for seasonal swings in sales, which cause swings in inventory and receivables, or to repay accounts payable when attractive discount terms are offered for early payment.

Accounts Payable

Accounts payable are obligations due to trade suppliers who have provided inventory or goods and services used in operating the business. Suppliers generally offer terms (just like you do for your customers), since the supplier's competition offers payment terms. Whenever possible, you should take advantage of payment terms, as this will help keep your costs down.

If the company is paying its suppliers in a timely fashion, days payable will not exceed the terms of payment.

Accrued expenses are obligations owed but not billed, such as wages and payroll taxes or obligations accruing, and not yet due, such as interest on a loan. Accruals consist chiefly of wages, payroll taxes, interest payable, and employee benefits accruals such as pension funds. As a labor-related category, it should vary in accordance with payroll policy (i.e., if wages are paid weekly, the accrual category should seldom exceed one week's payroll and payroll taxes).

Non-Current Liabilities

Non-current liabilities are those obligations that will not become due and payable in the coming year. There are three types of non-current liabilities: non-current portion of long-term debt (LTD),  subordinated officer loans (Sub-Off), and contingent liabilities.  However, only two of these are listed on the balance sheet. Non-current portion of long-term debt is the principal portion of a term loan not payable in the coming year; subordinated officer loans are treated as an item that lies between debt and equity. Contingent liabilities listed in the footnotes are potential liabilities which hopefully never become due. Non-current portion of long-term debt (LTD) is the portion of a term loan that is not due within the next 12 months; it is listed below the current liability section to demonstrate that the loan does not have to be fully liquidated in the coming year. Long-term debt (LTD) provides cash to be used for a long-term asset purchase - either permanent working capital or fixed assets.

Notes payable to officers, shareholders, or owners represent cash which the shareholders or owners have put into the business. For tax reasons, owners may increase their equity investment beyond the initial company capitalization by making loans to the business rather than purchasing additional stock. Any return on investment to the owners can therefore be paid as tax deductible interest expense rather than as non-tax deductible dividends. When a business borrows from a financial institution, it is common for the officer loans to be subordinated or put on standby. The subordination agreement prohibits the officer from collecting his or her loan prior to the repayment of the institution's loan. When on standby, the loan will be considered as equity by the financial institution. Notice that notes receivable to the officer are considered a bad sign to lenders, while notes payable to the officer are considered to be reassuring.

Contingent liabilities are potential liabilities that are not listed on the balance sheet. They are listed in the footnotes because they may never become due and payable. Contingent liabilities include:

• Lawsuits
• Warranties
• Cross Guarantees

If the company has been sued but the litigation has not been initiated, there is no way of knowing whether or not the suit will result in a liability to the company. It will be listed in the footnotes, because while not a real liability, it does represent a potential liability which may impair the ability of the company to meet future obligations. Alternatively, if the company guarantees a loan made by a third party to an affiliate, the liability is contingent because it will never become due as long as the affiliate remains healthy and meets its obligations.

Total Liabilities

Total liabilities represents the sum of all monetary obligations of a business as well as all claims creditors have on its assets.

Equity

Equity is represented by total assets minus total liabilities. Equity or net worth is the most patient and last to mature source of funds. It represents the owner's share in the financing of all assets.

Income Statement

Known also as the profit and loss statement, the income statement shows all income and expense accounts over a period of time; that is, it shows how profitable the business is. This financial statement shows what how much money the company will make after all expenses are accounted for. Remember that an income statement does not reveal hidden problems like insufficient cash flow problems. Income statements are read from top to bottom and represent earnings and expenses over a period of time.

Accounting and Recordkeeping FAQs

Answers to common questions about accounting and recordkeeping: http://www.business.gov/topics/finances/financial_statements/accounting_faq.html

What do I need to know about accounting and bookkeeping?

The importance of keeping adequate records cannot be stressed enough. Without records, you cannot see how well your business is doing or where it is going. At a minimum, records are needed to substantiate:  your tax returns under federal and state laws (including income tax and Social Security laws), requests for credit from vendors or a loan from a bank, and claims about the business, should you wish to sell it. Most important, however, you need them to run your business successfully and increase your profits.

How do I set up the right recordkeeping system for my business?

The kind of records and how many you need depend on your particular operation. The SBA's resources and an accountant can provide you with many options. When deciding what is and is not necessary, keep in mind the following questions: 1) How will this record be used?  2) How important is this information likely to be?  3) Is the information available elsewhere in an equally accessible form?

What financial statements will I need?

You should prepare and understand two basic financial statements: 1) the balance sheet, which is a record of assets, liabilities, and capital, and 2) The income (profit and loss) statement, a summary of your earnings and expenses over a given period of time.

What kind of profits can I expect?

This is not an easy question to answer, but there are standards of comparison called industry ratios which can help you estimate your profits. Return on Investment (ROI), for example, estimates the amount of profit gained on a given number of dollars invested in the business. These ratios are broken down by Standard Industrial Classification (SIC) code and business size, so you can look up your type of business to see what the industry averages are. These figures are published by several groups and can be found at your library. Help is also available through the SBA and the trade associations that serve your industry.

Design a Business Savings Plan

Determine the best way for your business to save money. http://www.easysaver.gov/

Contract Surety Bonds

Contract surety bonds may be able to get you jobs that you might not otherwise have an opportunity to receive.This page offers information on:  SBA Surety Bond resources, National Association of Surety Bond Producers, and the America Association of Insurance. http://www.business.gov/topics/finances/contract_surety_bonds/index.html

SBA Surety Bond Resources

Link to the SBA's Office of Surety Bonds and related programs: http://www.sba.gov/osg/

National Association of Surety Bond Producers

An organization of some 600 independent insurance agencies and brokerage firms that specialize in providing surety bonding and insurance programs to construction contractors: http://www.nasbp.org/

The Surety Association of America

A voluntary nonprofit association of 650 companies which collectively underwrite the overwhelming majority of surety and fidelity bonds in the United States. http://www.surety.org/

American Association of Insurance

AIA is the leading property and casualty insurance trade organization, representing over 375 companies that write more than $60 billion in premiums annually. http://www.aiadc.org/

Accepting Payment

Owners should know how to accept multiple types of payments from their customers. http://www.business.gov/topics/finances/accepting_payment/index.html

Accepting Cash & Checks

Learn to accept various forms of payment from customers; includes acceptable forms of ID and how to handle bounced checks. http://www.business.gov/topics/finances/accepting_payment/handling_finances.html. Should your business accept personal checks or debit cards? What kind of identification can you ask customers to show when making purchases? How does the law regulate the acceptance of large sums of cash? Establishing payment and collection policies and understanding the laws that regulate them are indispensable steps toward protecting the financial health of your business.

Accepting Large Sums of Cash

While most business owners love the idea of receiving $10,000 in cash, it tends to make the IRS nervous. To help ease their jitters, the IRS requires that merchants use Form 8300 for such large transactions, which includes the name, address, and social security number of the buyer. The same rule applies to cash equivalents such as traveler's checks, bank drafts, cashier's checks, and money orders.

ID for Check Transactions

Some states have laws regulating the kinds of identification customers may be asked to show when writing checks. Requiring a photo ID such as a driver's license is generally legal, but requiring customers to show a credit card as a condition for writing a check is often forbidden.

Check Policies

Creating and adhering to a check policy may help avert legal hassles. Common policies require that checks be written and signed in the presence of the seller, drawn from local banks, not written for more than the purchase price, and various other stipulations.

Cashing Old Checks

The Uniform Commercial Code, which governs banking practices in most states, declares that banks may refuse to honor checks dated back six months or more. It's best to cash checks as quickly as possible.

Bounced Checks