Financing a Small Business Start-up

By | November 5, 2007

No experience, lack of credit and capitalWith stats ranging from 50% to 80% of new businesses failing in the first 5 years, how can you increase your chance of survival?

Having worked in commercial equipment finance for many years, I have sorted through my fair share of start-up applications. Imagine, if you will, a mountainous eyesore of unprepared hobbyists who are willing to risk their future without knowing of the basics of running a business full time.

To answer the question “How to succeed” (covered at a later date) you must first examine the reasons for failure:

1) Lack of Capital: Most start-up businesses fail to prepare for the inevitable lack of money. The un-educated think that an immediate windfall of money will result from opening their doors, while the under-educated seem to prepare with a small nest egg of just in case money; both result in the same outcome, with the latter arriving a little later than the first. The truth is whatever revenue you may generate in the first 2 years almost certainly needs to be reinvested back into the company.

2) Poor Credit: We live today in a society where 40% of Americans spend more than they make. If your business plan hangs in the balance of being approved through one of the limited sources of financing available to you, then be prepared to air out your dirty laundry. If you have little to no credit, slow payments, over exposure of credit card debt or anything below perfect credit and stout financials, then you best dig up the coffee cans in the backyard, as financing will be an exercise of futility.

3) No experience: Society has taught us to follow our dreams; it has failed to mention how to make a living while doing so. If your sole work experience has been as a carpenter and your dreams of opening up a bohemian coffee shop, then take leave of building shelves and gain experience as a barista. When the captain of the ship doesn’t know the first thing about sailing, the boat will probably end up sinking.

Related Articles and Links:
U.S. Small Business Administration
IRS Guidlines for Starting a Business