Finance a Business

When it's time to finance a business, there can be substantial work involved to facilitate this critical step. Every business situation is different, and businesses in different industries and sectors have different ways of going about getting credit, as well as different kinds of costs. But for the core process of securing the financial assistance that a business leader needs for a start up, some basic guidelines and principles will help create effective programs to finance a business.

Steps

1. Assess credit. The person who is trying to start up the business will have to look at his own credit situation, as well as what he can get for a new business in terms of credit.
   
   
   • Find out about credit scores and ratings. In many cases, the initial business loan will be based on the borrower's own personal credit score. However, in some cases where a business is already operational, a business plan and other documents can provide for a different kind of credit specifically for the continued operations of that enterprise.
2. Shop around for different lenders. There are a variety of lenders who may or may not be willing to issue new business loans, and all of these potential lenders have their own terms and conditions. Talk to various lenders and ask them about what kinds of loans are available.
   • Evaluate loans by timeline. Lenders will offer various short-term, long-term or revolving-credit loans to business owners. Look at which ones suit the needs of a startup the best.
   • Look at secured and unsecured business loans. Secured loans actually use existing assets as collateral. For example, the person trying to start a business can use his or her home, or other property, as collateral and get lower interest rates for the loan. However, this leaves the assets vulnerable to seizure in cases of nonpayment. Unsecured loans rest solely on the borrower's credit score. See which of these types of loans best matches desired risk.
3. Select the best deals. When the startup leader has gone to different lenders and has a variety of possible loan agreements at hand, he can select the ones with the lowest interest rates and most favorable terms for repayment.
4. Make payments through revenues. Be sure to make the correct periodic payments on finalized loan agreements, using the revenue from business operations to fund repayment of loans.
   • Look into decreasing overhead as necessary. If the loan payments are not easy to make, the business startup leader will need to look at cutting costs. This complicated task often includes going through a business budget line by line in order to identify costs that can be cut without harming future profitability. Cuts may need to be done in order to meet the needs for loan repayment, which is most often the core requirement of continuing in a business and avoiding bankruptcy.