With the potential of a full blown recession in the United States, there has been an increase in small business start-ups. Starting up your own business in hopes of generating new found wealth is a good thing, but would-be entrepreneurs need to be careful when searching for that perfect business fit. Don’t get suckered into a deal that will make someone else money and not yourself.

A new trend that has hit the marketplace is prepackaged businesses opportunities, otherwise known as a “business in a box”. Often times these types of businesses are bogus scams. They are easy to fall prey to because those that are pitching the products are very convincing. More times than not, these types of businesses do not yield the money that the promoters say they will. Small business owners need to be enthusiastic, but they must also be realistic.

When considering this type of business, scrutinize each piece of information that is provided by the seller. It is important to go and see the potential business opportunity in person. Talk to people other than the person you are getting the sales pitch from. Get all information in writing no matter how small of an investment they are asking for. If the promoter has to back up his claims in writing, it will be more difficult for him/her to rip you off.

Check back on Monday for the conclusion to this post.

In continuation from Monday’s post.

Grants….Small Business Innovation Research Grants (SBIR) is available if your company is a technology business. This is a federally funded program that mandates that certain agencies set aside part of their budgets to fund high-tech companies with interesting inventions that they want to commercialize.

Grants are also available for women and minority-owned businesses. Funding for Grant programs is very competitive, but if you are lucky enough to receive one, you will likely attract other investors who are interested in your company.

Venture Capital….Not the best option for new or early stage businesses. If your company already has a proven track record with promises of high returns, it might be worth investigating.

Angels….Most “angels” are interested in companies that are further along in the development stages as a general rule. If you have a product or service that is currently out on the market and a proven management team, you might want to try this route.

Angels are private, high net-worth individuals, who typically invest between $50K to $2 million in companies. They can also provide expertise and useful contacts in the industry. There are “angel clubs” that have formed nationwide. They meet on a regular basis to hear brief presentations from entrepreneurs seeking money. They often give money jointly to companies as an investment.

You will find that sometimes it pays to be creative when raising money for your business.

In continuation from Friday’s post.

Bootstrapping….Using whatever resources you have on hand to help you get your business to the next level is considered bootstrapping. Most new company’s start up costs come from personal savings and home equity loans. Some businesses have used credit cards to aid in paying for start up costs. It is estimated that one-half of all business begin by using credit cards. Owners must be very careful when using cards. The finance costs could be crippling to any business, especially a new one.

One well known, successful company that financed most of their initial costs was Google. If you use your credit cards, be sure to make your credit history a top priority. Never be late on a payment and pay back as much of the loan as possible, as soon as possible. Looming debt or bad credit ratings will affect you adversely if you apply for a Small Business Loan or other type of loan in the future.

Suppliers and customers….You may be able to convince some suppliers to hold inventory for you until a certain date. You would need to provide them with final date in which all supplies will be paid for in order for them to even consider such an option. Some customers may be willing to fund your products as long as you are willing to customize them for their own businesses.

Check back on Wednesday for the conclusion to this post.

Finding start up money for your new business can be a daunting task even for the most groundbreaking new business. Many new companies may need to be creative in their finance seeking. Here are some ideas for new small businesses.

Friends and family….In the early stages of any new business, some entrepreneurs have asked friends, relatives, colleagues or other people that they know well, to help with their new business. Friends and family do not usually need to see a business plan, so financing is more informal. It would be wise to draw up a contract to prevent any misunderstandings with your financial arrangements.

Funding from banks….New business may find that obtaining a traditional bank loan initially difficult. Banks typically like to see a company in business for at least two years before they will consider funding. They have many requirements that must be met before approval of the loan. Manufacturing company buildings or those using heavy equipment are usually the exception to the rule. Banks will loan money based on your ability to pay the loan back. They are more likely to finance a company that has a greater value. Applying for a loan that is guaranteed by the Small Business Administration is the best possible scenario. Once businesses qualify, owners may still need to pledge their home as collateral for final approval.

Check back on Monday for part II of this post.

As predicted, the mortgage crisis that has affected the United States is hurting many banks across the country. It only stands to reason that banks will need to tighten their belts wherever they can, including Small Business Administration Loan distribution.

Many banks are less risk inclined than they used to be when considering giving out loans. One of the reasons that Small Business Administration backed loans are on the decline is because small businesses are worried about expansion in today’s economy. The resulting standards for obtaining a loan are becoming more difficult for even solvent businesses.

Loans to businesses are still available, but banks are asking for more collateral besides the inventory. Those businesses requesting loans could experience tougher terms being set by banks. Banks will likely request more documentation of business finances and they will pay particular attention to credit reports. As a result, there will be higher premiums charged for risky loans and higher costs of credit lines. Businesses could experience difficulties in financing when they try to purchase another business or buy additional property.

Many small business owners have tapped into their home equity as a means of obtaining lines of credit or have even used their home equity as collateral. Due to the reduction of real estate values, it will be difficult to use this as an option in the near future.

If you are interested in obtaining a Small Business Administration Loan, consider the following before applying:

Check your credit to make sure it is clear of problems.

Research the industry that your business is in before applying for a loan.

If you don’t have experience in the industry, consider taking on a partner or manager who is experienced.

Do financial projections. Know what the cost of the expenses, inventory and expected revenue are.

So far in Buffalo district the SBA has approved 168 loans in the first quarter. This is compared to the $58 million loaned in the 2007 fiscal year. This is a good start for Buffalo and $7.8 Million were through the popular 7(a) Express Program.  The biggest advantage for 7(a) Express loan is the 36 hour turnaround time for approval and the maximum loan amount is $350,000.

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Many people have suffered due to the storm tragedies in the south. The March 17, 2008 deadline for financial help is fast approaching. Businesses, homeowners, renters and non-profit organizations are reminded that their time is running out to submit their disaster loan applications for damages caused by the severe storms and tornados that occurred in Alabama and Mississippi on January 10th.

There are several loan programs available to affected residents. Homeowners and renters are eligible to receive up to $40,000 for replacement of personal property. Personal property is described as: appliances, clothing and furniture. There are loans available for up to $200,000 for homeowners for repairs or replacement of damaged or destroyed real estate.

Businesses of all sizes and non-profit organizations can obtain loans for up to $1.5 million. Loans can be used to repair damage to real estate, equipment, inventory or machinery. Small businesses that are unable to meet operating expenses or pay their bills because of the disaster, can also apply for the Economic Injury Disaster Loans that are available.

Businesses can receive 4% rates for terms up to 30 years. Homeowners and renters can receive rates as low as 2.937. Each applicant’s financial condition will determine what loan amounts and terms are available.

Only the affected residents and business of the following counties may apply for assistance: in Alabama; Lamar and Pickens and in Mississippi; Attala, Carroll, Clay, Holmes, Humphreys, Leflore, Lowndes, Madison, Monroe, Noxubee, Oktibbeha and Yazoo.

Businesses have until October 16, 2008 to apply for economic injury. The deadline for physical damage applications are March 17, 2008.

Business owners often think that their personal credit does not have anything to do with their business credit. Any business credit is built upon what personal credit the owners have. New businesses do not immediately have credit for lenders to refer to when deciding what amount of credit liability that they are willing to extend. Lenders will rely on the personal credit information from all owners as one of their main criteria.

All business owners should obtain at least one copy of their personal credit report before applying for any loan. It is wise for all consumers to do this at least once per year. Credit reporting agencies have become more accurate over the past 10 years in their reporting results, but mistakes do happen all too often. Any mistake that you find should be addressed immediately with the credit reporting agency as well as the company that reported the incorrect information. It can take up to 30 days to clear up errors on your credit report, so time is of the essence if you are in need of a loan.

The three main personal credit agencies you should contact in order to get your credit report are: Trans Union, Experian and Equifax.

It is equally important that established business owners review a copy of their business credit report before submitting a credit application. Companies rely on business credit reports to make critical credit decisions as well. Dun and Bradstreet Inc. (D&B) is a recommended place to obtain a copy of your report.

So the answer to the question is….both count equally. It is important to always keep youself and your company in good credit standing.

This partnership with the Minority Business RoundTable (MBRT) and SBA is intended to expand and strengthen small business development throughout the US for minority entrepreneurs.

“Minority businesses are one of the fastest growing sectors in the small business community, so it is imperative we reach out and educate them on SBA’s products and services,” SBA Administrator Steve Preston said.

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Determining what your financial needs will be is important to do before applying for a Small Business Administration Loan. For new businesses, it is wise to estimate the costs of your business for the first several months. There is no absolute method to determining how much start up cost you will need. Each business needs are different and all will have different needs depending on the development stage they are in. Some businesses will require a considerable investment in equipment or inventory and some may be able to operate on a limited budget with little to no financial help.

When starting up a business, determine which expenses are a one-time cost (such as obtaining your Articles of Incorporation) and which will be an on-going cost (such as rent). Determine which of these expenses are optional or essential. A start-up budget should only include expenses that are necessary to start up your business. Once the essential costs are determined; combine the information into a worksheet for easy reference and have two separate categories: fixed and variable. An example of fixed expenses would be insurance, rent, administrative costs and utilities. Inventory, sales commissions and inventory are all variable expenses.

To calculate out your total start up costs, you will need to determine your initial expenses, money in the bank (as reserve for losses), start up inventory, other assets and long term or fixed assets. Adding all of these items together will help you determine what your total start up requirement is.