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Finding the right financing for your business

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Steve Bernstein

Almost every business needs at least some money to get started. Many seek additional funding at various times after the business is up and running. Often times small business owners don’t know where to find the money they’ll need.

There are three common sources of startup funding:

• Personal savings and borrowing

• Loans from family and friends

• Loans and lines of credit from financial institutions

If you haven’t saved all of the money you’ll need, you’ll need to combine your own investment with funds from other sources. A lender will have greater confidence in your commitment to succeed when they know you have your own personal investment in the business. Many lenders, including the U.S. Small Business Administration (SBA), often require this.

To borrow from a financial institution, you need to have good credit. Secured credit is ideal if you’re just starting out and want to build good credit history. Develop a good working relationship with your banker or lender. The more they know about you and your business, the better they can advise and assist you.

The single most important thing small business owners should know before talking to a banker is -- Be prepared to tell your story about your business. Be forthright with your banker. Help them understand your cash flow. Be prepared with tax returns, financial history and if you’re looking to borrow money, any lender will need to understand how you will use the money and more importantly, how will you repay them.

Come prepared to talk about the details of your business – cash flow, debt levels, business acumen and payment history. Being prepared means you and your banker can have meaningful conversations about your needs and be able to provide you with the right solutions.

Before approaching any type of lender it is important for business owners to do their homework and understand the different types of loans available to them.

There are a few things small business owners should think about before approaching any financial institution, large or small:

Is the bank known for its strength and credit discipline?

- Does the bank have a small business focus?

- Does the banker take the time to get to know your business?

- Can the bank continue to meet your financial needs as you grow?

- Does the bank have a presence in the community and know the local business environment?

You really want to be prepared to answer the key question: Are revenues greater than costs? Establish how much working capital is needed to sustain the business until it reaches profitability.


The lender will ask you to back up your estimates. For example, if you plan to buy an expensive piece of machinery, the lender will want evidence that the manufacturing company will sell you that machine at the given cost, and that you have any necessary permits. Lenders will also want to see a purchase order or bid to estimate the cost of the item.

You should ask questions, too: Ask the lender about the loan terms, such as interest rate, maturity (the length of the loan), collateral requirements, and the amount they are willing to lend. Also ask if the lender is familiar with your type of business.

Finding a banker and building a long-term relationship with that banker will pay off when it comes time to secure lending.

You can find more Small Business resources at www.WellsFargoWorks.com.

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Bernstein is the Southern California Business Banking division manager for Wells Fargo’s Business Banking Group.

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