Por Ivette Llopiz
Continental National Bank
Officer/ SBA Specialist
You’ve written your business plan, you’re excited about your business idea, and now it’s time to get started. One problem: You don’t have the financing to fully realize your dream. There are numerous routes that you can take, and each has its advantages and disadvantages.
Getting a loan from a local bank is the first option that most people consider when funding a new business. But it’s often difficult to obtain a bank loan on the basis of a business plan alone. Banks can’t use your idea as collateral. If you are thinking of getting a bank loan, you will likely need to secure the loan through other means, such as putting up your home as collateral.
A bank loan may be more feasible, though, if you are purchasing an ongoing business outright. In that case, the assets or the business itself can be used to secure the loan. In any case, the advantage of a bank loan is that you won’t have to give away any equity if your business succeeds. If your business fails, however, you may end up losing more than your business assets, depending on the terms of the loan.
Angel investors are private investors who contribute money to a business in exchange for an ownership interest. The obvious advantage of utilizing angel investors is that you don’t have to repay a loan. However, you may have to give up a significant amount of equity to the angel investors.
Perhaps the greatest obstacle is finding the right angels. If you opt for this route, make sure that all parties have the same expectations regarding the prospect of success. You need to agree on how long you expect it will take for the business to be profitable (be aware that most small business plans are overly optimistic as to profit expectations) and whether your angels will hang in there with you if it takes longer than expected.
Venture capital firms may be a viable financing source for your business but, then again, they may not. Like angel investors, venture capitalists typically take an equity stake in your company, and most expect to receive preferred equity security in exchange for their investment.
Most venture capitalists specialize in certain industries, and many provide corporate direction as well as financing. What areas do venture capital firms focus on? Many firms specialize in high-tech, computer, and Internet services. Others specialize in scientific projects and inventions that require a lot of cash. In recent years, some organizations have emerged that focus on specific demographic groups, such as women entrepreneurs.
We’ve all heard and read a lot about initial public offerings (IPOs). IPOs are stock sales in which previously private companies go public. An IPO is a possibility for an ongoing business, but it isn’t likely to be a viable alternative for your new company. A private placement is less complex than an IPO and involves selling shares of stock to a select group of equity investors.
The investors typically exercise control over the company in direct proportion to the number of shares that they own. Selling stock or other securities in your business generally requires compliance with federal and state securities laws.
Accounts receivable financing
You’ve been in business for a while and you have customers, but your collections have been bad. You need cash now, but your lack of cash inflow is holding you back. What can you do? Reach out to Continental National Bank and ask for our Accounts Receivable Financing program, CNB BusinessManager. This program allows you to get cash for your accounts receivables deposited directly into your bank account by selling them to the bank at a discount.
Economic development programs
Many federal, state, and local government loan programs are available to small businesses. The Small Business Administration (SBA) is a good place to start. Did you know that Continental National Bank is an SBA preferred lender?
The SBA offers a variety of loan programs for very specific purposes, some are:
• The 7(a) Loan Program is the SBA’s most popular loan program, and it includes financial help for businesses with special requirements. It helps start-ups find funding when they otherwise might not be eligible for traditional financing options. The maximum loan amount is generally $5 million (certain exceptions apply).
• The CDC/504 loan program is a long-term financing tool, designed to encourage economic development within a community. The 504 Program accomplishes this by providing small businesses with long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization.
• The Export Express Provide exporters and lenders with a streamlined method of obtaining financing for loans and lines of credit up to $500,000. Lenders use their own credit decision process and loan documentation; exporters get access to their funds faster. SBA provides an expedited eligibility review with a response in less than 24 hours.