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Finding capital

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The U.S. Small Business Administration (SBA) and its partners help millions of existing and prospective small business owners start, grow and succeed. They help with SBA loans, counseling, training and contracts. SBA also helps businesses and families recover from disasters with loans, and is a voice for small business, helping reduce regulatory impact. Each month, this section provides information to start, expand and manage small business.

Ask any entrepreneur what their biggest holdup to launching or growing their business is, and the answer will come quick and sure: money.

There is little doubt that finding capital to finance your business venture is the most basic and important of all your business activities. It also can be the most frustrating one if you don’t know where and how to look, but it need not be so. Finding capital can be a smooth, rewarding experience provided you study diligently and plan effectively.

However obvious it may seem, the first thing you need to know before setting out in search of money is how much you need. Here, again, a thorough business plan will be critical in determining your financial needs. Once you have determined how much money you need, there are several sources to consider when looking for financing. It is important to explore all of your options before making a decision.

Personal savings: The primary source of capital for most new businesses comes from savings and other personal resources. While credit cards are often used to finance business needs, there are usually better and less expensive options available, even for very small loans.

Friends and relatives: Many entrepreneurs look to private sources such as friends and family when starting out in a business venture. Often, money is loaned interest-free or at a low interest rate, which can be beneficial when getting started.

Banks and credit unions: The most common sources of funding, banks and credit unions, will provide a loan if you can show that your business proposal is sound, which is shown by your business plan.

Angel investors and venture capital firms: These individuals and firms help expanding companies grow in exchange for equity or partial ownership.

Borrowing money from a bank or other financial institution to start a business — and even for established small businesses — is usually seen as difficult. Inexperienced or ill-prepared borrowers do not make matters any easier by submitting incomplete or poorly filled loan applications, or by showing up without a business plan, prompting lenders to assume that you may be a high risk.

To improve your chances of obtaining a loan, you must be prepared and organized. You must know exactly how much money you need, why you need it and how you will pay it back. You must be able to convince your lender that you are a good credit risk. Approval of your loan request depends on how well you present yourself, your business and your financial needs to a lender. Remember, lenders want to make loans, but they must make loans they know will be repaid. The best way to improve your chances of obtaining a loan is to prepare a written proposal.

In addition to general information — business name, names of principals, Social Security number for each principal, business address, purpose of the loan, amount required — a well-written loan proposal should contain the main elements of your business plan: business description, management profile, market information and financial information.

The SBA, through its San Diego District Office and resource partners, can help prepare a sound loan application that will enhance the chances of getting the funds needed. If at first you are turned down by a lender, ask him or her about an SBA 7(a) loan guaranty. Often, there’s very little additional paperwork, and a guaranty can often be approved within a couple of days.

Small business success

David Linde and Abbie Kaplan started Salon Radius with little knowledge on how to run a business and what it would take financially to weather the first few years.

They poured everything they had into their company, financially, mentally and physically, working seven days a week, to see their vision of being one of the most well known salons in San Diego come true.

They opened Salon Radius midway through 2002 and in less than a year the salon was voted “One of the Top 22 Salons of the Year” by Salon Today Magazine for 2003. Additionally, they have been featured on KUSI News Channel 9 and in Vibra Magazine.

They recently acquired their second SBA loan, which has helped them to grow Salon Radius. Proceeds from the loan cash flow enabled them to begin remodeling the salon for new ventures in skin care and retail.

“The loan provides the muscle needed for increasing business through long-term commitments and long-term investments,” Linde said. “Best thing we ever did.”

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