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


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