November 2, 2009

New business startups

When seeking to finance the startup of a new business, I highly recommend developing a business plan that clearly describes your business; the ownership/management, initial capitalization, products/services, operations, market analysis, financial projections, etc. 

If your business plan does nothing else, make sure it clearly describes the scope of your project and your need for financing.  What needs to be done to make your business a reality and how much money is required to do it?  Specifically, how much equity capital is being contributed to the project by ownership and how much of a loan is required to complete the project?  Finally, what exactly, will the loan proceeds be used for?

Tip: In the world of SBA loans, there is no such thing as 100% financing for a new business startup.  Every new business project must include an equity stake contribution from ownership.  But how much of the project must be owner's equity and how much can be debt financing?  There's no exact rule because it depends on the level of risk associated with a given project but in general, expect no less than the 80/20 rule.  The owner's equity stake should make up no less than 20% of the total project and the SBA loan or debt financing should make up no more than 80%.  It depends on the bank.  Some banks require a 70/30 or even a 60/40 mix of debt to equity for new business startups and some banks shun startups altogether.    

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