Basic Questions on Financing
While poor management is cited most frequently as the reason
businesses fail, inadequate financing is a close second. It is
not enough to only have sufficient financing; knowledge and planning
are required to manage it well.
Before searching for financing, ask yourself the following questions:
- Do you need more capital or can you manage your existing cash
flow more effectively?
- How do you define your need? Do you need money to expand
or as a precaution against risk?
- How urgent is your need?
- How great are your risks?
- 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 you to specify the needs that you will use your capital
- What is the state of your industry? Depressed, stable, or
growth conditions require different approaches to money needs
and sources. Businesses that prosper will often receive better
funding terms than ones in decline.
- 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.
- 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 plan
for the start-up and growth of your business.
Source: Small Business Administration