Where Will the Money Come From?

Where Will the Money Come From?
One of the biggest challenges that small business owners face is financing their businesses. For most, this challenge first arises when they start their businesses, and continues until they sell or otherwise wind up the business.

When starting your business, the first place to start looking for money is with your own resources. You might have some unused assets you can sell. Among your resources, family and friends might be prepared to help you out. Conventional lenders such as banks and credit unions are always willing to lend money to credit-worthy small businesses. Although all governments claim to support small business, unfortunately, few offer monetary assistance.

There are thousands of stories of business owners who risked everything they had, even their homes, to start and run their businesses. If they ultimately achieve success and live happily ever after, they are often presented to us as models of the determination and commitment required to succeed in one’s own business.

Personal assets also include everything from cash on hand through investments to your home and recreational real estate. Which of these assets are cash or easily converted to cash? As members of a consumer society, most of us have collected things that we no longer use or enjoy. The summer property or ski chalet that no longer holds our interest, or the boat or snowmobile that drains money without yielding any enjoyment could be sold and the proceeds used to finance the business.

How Much Do They Really Love You?
The same report that indicated personal assets as the most frequently used source of startup business financing also showed that financing from family and friends was the second most popular source. This widely used source of financing a business is also the riskiest. Conventional lenders like banks and other financial institutions are in the business of lending money and have procedures in place to minimize their risks and to take action when borrowers default. They can and will continue to function if a small borrower defaults. However, friends and relatives are not as likely to carefully evaluate the risk. They are helping you and expect you to repay them regardless of what happens. Failing to repay relatives or friends can and does jeopardize these relationships. Before taking this approach, ask yourself what would happen to your relative or friend if you cannot repay the money that is advanced to you? Can you live with these consequences?
Can You Lend Me a Few Dollars?
Conventional lenders include banks and other financial institutions that are in the business of lending money. They make their money from the interest they charge on loans. Thus, applying for a loan is a normal business transaction. Do not look upon borrowing money from an institutional lender as being similar to asking a relative or a friend for a favor. Borrowing is a business transaction: You are negotiating the use of the lender’s money to purchase something you need to run your business. Treat it as you would any other business requisition.




This growth in interested lenders may be attributed to the federal Small Business Loan program, which in effect makes qualified term loans to small businesses “government guaranteed.” Some people believe that every small business should have a Small Business Loan at the early stages of its life. Take advantage of the competition among lenders. In order to obtain your business, one lender might be prepared to offer you more favourable terms than competing lenders will. Also, different lenders use different criteria. Just because one account manager is not interested in your business, it doesn’t mean that all other account managers at all other lenders will also turn you down. If you have a good credit history and can offer satisfactory collateral, you can probably arrange a loan with one lender or another.


Who Wants to Invest in My Business?
Realistically, there are only two equity financing options available for small business. One option is asking your friends, relatives, and network contacts to invest in your business. Unlike asking these people to lend you money, this approach involves asking them to buy a share of the business in return for a share of the profits. However, unlike traditional investors, friends, relatives, and network contacts who invest in your business are, in fact, investing in you, and they expect to get their money back, regardless of what happens to your business.
Should you choose to follow this approach, make sure that the investment is properly documented:
This means properly prepared subscriptions, minute book records, and actual share certificates. Also make sure that in your zeal to attract investors, you do not violate the provisions of any applicable securities legislation.

The second option is to take in a partner-shareholder who can inject additional capital into your business startup.