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Making Good Financing Choices

While banks and other financiers are in the business of lending and providing myriad forms of financing, they tend to shy away from start-ups, considering such enterprises risky. In the case of firms that provide services rather than products, they are even more unlikely to take a chance.

Changing a probable “no” into a likely “yes,” therefore, is a matter of approaching lenders with your homework done. It helps having actual contracts and letters of intent in hand when approaching the bank. It says that you are a business, not just an entity hoping to be a business. Prior to approaching any lender, make sure you have a written plan. Lenders don’t have ready access to the thoughts in your mind; what they need to see is your plan on paper.


Credit History

Secure a copy of your credit history so that you are able to see yourself as lenders do. Other important information to have at your fingertips includes your personal financial history. If that is clean — as indicated by, say, your tax returns and bank statements for about three years — lenders will be more apt to be receptive. Even if it isn’t clean, be upfront with the lender.

Armed with this necessary information, you can then begin approaching lenders. It is at this point that securing financing becomes a job of building relationships. You might start looking for money for your business, for example, from the bank officer with whom you do your personal banking. If money isn’t immediately forthcoming, a referral might be — all of which begins to get that financing ball rolling.

Two years into the business and guess what? No longer do you have a start-up to finance but an expanding business that also needs funding, but of a different sort and a different amount. The job of financing the growth of a company can be even more daunting than funding its launch. At issue are questions about whether to expand physical space, hire employees and take on new clients.


Financial house in order

As with securing start-up funding, going after money for growth requires that you have your financial house in order. At least one set of business finances audited by a certified public accountant is a necessity; also important is an updated credit report.

At this point, however, the twin factors of reputation and relationships come more heavily into play. As your company expands, you will likely move up the financing ladder to the place where loans from banks metamorphose into funding from angels and venture capitalists. At that stage, making good choices becomes the focus. Venture money looks tempting, but don’t think of it as the Holy Grail. A loan at 7 percent, especially if most of your clients pay on time, looks a lot better than turning over control to an investor who becomes part owner.

Financing your business — the options are yours. What’s important is how you go about securing the money you need. Understand that building a reputation and nurturing relationships is important. Understand, too, that options snowball once the good word is out about your company. Finally, understand that good companies make good financing choices.