Overcoming Financing Problems as a Small Business
- 1). Review your business plan. Evaluate the total value of your assets and liabilities, and calculate your expected returns for the next six months. Your assets include your inventory, real estate and related investments, and your liabilities include all costs, such as buying new inventory and paying rent and salaries. To calculate your expected returns, multiply your average profit margin over the past four months by however many months into the future you are trying to predict. For example, if you average 10 dollars in profit each month over the last four months and wanted to anticipate your profit margin for the next six months, you would multiply 10 by 6.
- 2). Justify the infusion of additional capital. Once you have completed a business plan and basic model of expected returns, add fields delineating where you would expect the additional capital to go and explore exactly how that capital would yield a profit. Explain why you need more money to justify getting more money. Also, review the business plan to cut any costs you do not need (for example, don't hire that extra secretary—you can open your own envelopes). Enterpreneur magazine suggests that frugal business plans help all businesses, not just those in trouble.
- 3). Visit a bank and request a loan that meets your current and expected financial liabilities. Compare loan offerings from different banks, and seek out the loan that provides you with the lowest interest rate and the most competitive financial plan that suits your current financial abilities. For example, refuse a loan with a low interest rate and a high monthly repayment rate that you cannot afford. In general, you want the best repayment terms to suit your needs and the best interest rate among those loan options.
- 4). Seek out investors. Contact your local commerce department for assistance in contacting the most pertinent investor. Be aware: Investors will likely be even more critical of the capital infusion than a bank will; however, with investors, you can either ask for a loan or offer to provide equity in the company. If you request a loan, you must pay it back in full at some point, with interest. If you provide equity instead, however, you will pay back only the equity in proportion to the total profits made by the company. If the company makes no profit, you do not owe the equity investors anything.
Source...