Have a solid business plan before seeking financing

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After several years of financial market upheaval, banks are once again making loans to viable small business proposals. But as Central Maine SCORE mentor Peter Sassano noted, “The banks are determined not to repeat past mistakes.

“The fallout from the lax lending decisions of several years ago has led them to focus on the creditworthiness of the business and the entrepreneur,” Sassano said. “You want to show you really have a viable way to generate a return on the investment so that you can pay back the interest and principal on the debt.”

While banks remain a primary small business-funding option, entrepreneurs should consider some alternative sources of startup or expansion capital. Loans from friends and family have long been a go-to source of funds. If the financing arrangement isn’t well structured, however, both business and personal relationships may be permanently ruined. That’s why everyone should be clear on the financing structure and risks involved, whether the deal is a simple loan or involves an ownership stake, and repayment terms.

Another source often recommended by planners and developers is individual “angel” investors. Like a bank, they want to earn a return on investment, but with their own money. Their decision to support a venture may be driven by a desire to be part of an attractive new idea, or they may invest because they like the entrepreneur and want to see him or her succeed.

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State and local economic development agencies can provide workspace, training and administrative support; reduced rates on office and production space; and tax incentives. The Small Business Administration’s Microloan program, available at area Small Business Development Centers, is also a good source for short-term working capital.

Sassano added, “There is you, the entrepreneur. Take extra care to ensure your option choices are used wisely. Before you dip into your savings or tap the equity in your home, map out a realistic plan to meet existing obligations and daily living expenses.”

Regardless of the type of financing strategy you choose, evaluate the pros and cons and decide if the rewards greatly outweigh the risks. You can find financing expertise at SCORE, a nonprofit organization dedicated to helping you start, grow and succeed.

For more information and an appointment to meet with a volunteer mentor, contact Central Maine SCORE at 782-3708 or at lewistonauburnscore@gmail.com or contact the Auburn Public Library for an appointment with a volunteer mentor. In Oxford Hills, call 743-0499; in Rumford-Mexico, call 364-3123. Or contact SCORE at www.SCOREmaine.org.

This column is provided by the Central Maine SCORE chapter.

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