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 for.
- 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
