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Finding the capital you need to get your business started may be easier than you think.
By Max Berry


You've come up with a business idea; you've done the necessary research and written a sure-fire business plan. Now what's the next step? Finding the money to turn that business plan into reality. There is a wide array of potential sources of funding available to entrepreneurs. Each comes with advantages and downsides.


All in the Family
Friends and family members are often the first place a budding business owner turns to when looking for money to start his or her company. “Your family is a great starting place for a loan,” says Skip Honigstein, chairman of the Orlando chapter of the Service Corps of Retired Executives (SCORE). “If you have a strong idea, the first people you are most likely to persuade are those who know you the best.” Honigstein notes that family lending is particular common among many immigrant communities, in which families often work together to launch new businesses. “You’re also likely to get much more favorable repayment terms from close relatives than you would from any bank,” he adds. If your family can’t fund your fledgling company directly, they may still be able to help obtain funding from a bank or other financial institution by guaranteeing a loan. Ted Waitt co-founded Gateway Computer in 1985 with a $10,000 loan guaranteed by his grandmother. Today Gateway has revenues of almost $4 billion a year and employs over 1,600 people.




Of course seeking money from family members and close friends has its risks as well. "Money issues can poison what were once close relationships," says business consultant C. Davis Fogg. Being in debt to the bank is one thing, feeling indebted to a family member or friend is a much more personal experience. “If your business runs into trouble and is slow to repay a loan—or unable to repay altogether—that can create serious problems with the family members who gave you the money. Remember, you don't have to spend Thanksgiving with your bank.”


"If your business runs into trouble and is slow to repay a loan—or unable to repay altogether—that can create serious problems with the family members who gave you the money. Remember, you don't have to spend Thanksgiving with your bank."


Play Your Cards Right
Increasingly, budding entrepreneurs are turning to the easiest form of borrowing around—credit cards. "Many people use their personal credit cards to start a business,” Honigstein says. “Credit cards offer a quick and convenient way to purchase needed assets while spreading out the costs over time.” Nevertheless, like any other borrowing instrument, credit cards demand careful use. “You need to watch the balances and make certain not to take on more debt than you can handle." Interest rates on credit cards often rise after certain debt levels have been reached, as well as in the event of a late or missed payment, which can cause your debt to increase rapidly.


“There are genuine advantages to using credit cards wisely,” says Gerri Detweiler, author of The Ultimate Credit Handbook. “Credit cards also provide convenient billing statements that allow you to track expenses,” she adds. However, using personal credit cards can negate that advantage by mixing your personal finances too closely with those of your business. “If you are late with a payment or run too high a balance on a personal card that you are using to run your business, your credit rating will suffer.” That can hurt you in the long term if you need to borrow money for non-business related reasons—car loans and home mortgages, for instance. Detweiler advises trying to separate your business and personal finances as soon as possible.


“Most banks and other lenders are working hard to recruit new small business customers,” she says. “So as soon as you file the forms with the state to open your business, you may find yourself deluged with business credit card offers.” Detweiler says that business credit cards will help insulate your personal credit rating from any trouble your business experiences. (To find and compare business credit card rates, try searching or Many business credit cards offer some form of rewards program for specific purchases that can result in considerable savings on items like office supplies. “You should definitely take advantage of rewards programs,” Detweiler says. She adds that having more than one business credit card is often useful because the rewards programs and rates and fees vary significantly between different cards.


The Traditional Approach
Beyond family and credit cards, there is still the traditional bank loan. Many first time entrepreneurs are wary of approaching a bank with plans for a new business, assuming that they will be rejected, but today most banks are eagerly looking for small business accounts. “Banks are going out of their way to find new businesses,” says SCORE’s Honigstein. “But you will still have to demonstrate to them that your idea is workable and that you are a good risk.” That means providing them with a well-conceived, well-researched, clearly written business plan. “Your presentation to the bank needs to be professional in every way,” Honigstein advises.


Among other things, banks will scrutinize your financial history, including your credit record. So make certain you have resolved any outstanding issues before applying for a loan. The Small Business Administration (SBA) has a program to assist entrepreneurs with the process of obtaining a new loan and works with participating financial institutions to provide small business loans for startups. You can learn more about the SBA small business loan program at


Max Berry is an Associate Editor/Writer for Business 24/7 Magazine.

A well-executed business plan is a critical first step for every new business.
By Max Berry


You think you’re ready. You know what sort of business you want to start. You’ve written down your idea, narrowed its focus, and done the basic research. Now, what’s the next step? Turn that idea and research into a formal business plan.


Writing a detailed business plan is an essential step toward getting your business off the ground. Not only will the business plan help guide you through the challenges and complexities of launching your business, but it will also prove essential if you decide to apply for a loan to fund the business. “Banks look for signs that you know what you are doing and that you are really committed to your business idea,” says Martin Lehman, counselor at the New York chapter of the Service Corps of Retired Professionals (SCORE). “They need to see that you’ve worked through the details of your idea in a systematic way and have given real thought to the problems you may face.” The existence of a well thought-out, clearly written, well researched and realistic business plan will prove critical to demonstrating your seriousness and professionalism to any financial institution you decide to approach.




So what goes in the business plan? Business plans have a general layout. The plan should open with an executive summary that states in a few sentences, or a short paragraph, what the business will do and why you are the person—with the right experience, education, etc.—to make it happen.


Research, Research
After the executive summary you will want to lay out your market research and analysis, demonstrating that there exists an adequate pool of consumers willing to purchase your product or service. You can find precise data from government publications, industry publications, trade groups, and local chambers of commerce. You should also define the extent of the competition your business will face within the area it operates and how your business will stand apart from that competition. “You need to be realistic when assessing how much competition your new business is likely to face,” says business consultant C. Davis Fogg. “Too many startups don’t realize how difficult it is to attract customers—especially if there are well-established similar-type businesses already in the area.”


A Solid Structure
Describe your new business’s structure. How will your business deliver its products or services? Who will do what? Where will your operations be located? It may make sense to create charts that lay out the company’s critical processes, and executive decision-making responsibilities. “It’s a good idea to answer as many management questions as possible ahead of time,” advises Lehman. “If you have a partnership, for instance, who gets the final word on difficult decisions? The more detail the better.” Be sure to define the company’s ownership—will you own it completely, or are there co-owners or partners in the business? If you already have a team of key personnel in place, include their resumes or biographies and descriptions of their roles in the business.


Be Descriptive
Be sure to describe your product or service as well as your marketing plans in detail. “Again, detail is key,” says Lehman. “Don’t assume that a simple description like ‘coffee shop’ or ‘retail clothes store’ is enough.” Explain exactly what your business sells with as much specificity as possible and how your product or service distinguishes itself from the competition.


The Bottom Line
Finally, you need to explain the financial workings of your business. How much money will it cost to produce your product or service, rent a location (if applicable), pay any employees (including yourself), market the business, and purchase needed supplies? “If you are just launching your business,” Lehman says, “this can be tricky, since you don’t have an established track record to rely on.” So you will have to project your likely expenses and revenues based on your research. “And this can be the trickiest part of all,” Lehman warns, “because there’s a huge temptation to put everything in the best-possible-case-scenario kind of thinking.” Too many fledgling businesses, he says, are too optimistic when it comes to forecasting just how much money they will need to start the business and keep it running, and even more optimistic when assuming how many customers they will attract in their early days. “Sometimes its better to be a little pessimistic,” he says. “In any range of estimates, look at the less favorable ones.” In short, be conservative—assume expenses will be higher and initial revenues lower. Calculate a break-even forecast that shows the sales figure you will need to achieve just to break even, and then make sure your market research backs up the idea that you will get at least that many customers.”


For more information, including templates and guidelines for writing a business plan:
U.S. Chamber of Commerce (
Small Business Administration (


Offline Resources:
Business Plans for Dummies by Paul Tiffany and Steven Peterson
The Complete Book of Business Plans by Joseph A. Covello and Brian J. Hazelgren
Both are available from online vendors or at many public libraries.


Max Berry is an Associate Editor/Writer for Business 24/7 Magazine.


Be sure to look for Part III of this article, which will examine how to raise money to start your business and how to market your products or services.

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