Tackle Your Goal to Run a Small Business
It's football season. It's a time for storming the field and tackling goals. If your goal is to run your own business, don't let a lack of financing keep you out of the game. Consider these tips from the Federal Deposit Insurance Corporation (FDIC) about securing credit for your business.
- Have a game plan. Winning teams have a plan before they hit the field. You also should have a plan for your business before applying for a loan. A solid business plan increases your chances of securing credit. Your business plan should include these five elements: 1) a statement of your business purpose, 2) a list of the owners, 3) a description of your products or services, customers, market potential and competitors, 4) three years of financial statements and 5) references from potential clients and suppliers.
- Know your risks. Even the best players face the risk of an injury that could keep them out of the game. The best way to protect your business from a loss is to know the risks up front. Different types of loans come with different levels of risks. A bank loan backed by the Small Business Association (SBA) may help minimize risk by offering better interest rates and financing options, if you are eligible. Credit card and home equity loans may be more risky. Credit cards often come with higher rates that could cost you more in the long run. Home equity lines of credit put your home at risk if your business fails.
- Pace yourself. Teams that over extend themselves in the first quarter may run out of steam later in the game, which may ultimately cost them the win. Pace yourself accordingly when securing credit to ensure you can repay the full loan. Pick a loan term that works best for your business needs. Business loans generally come in three forms: 1) short-term loans that are typically used for ongoing expenses and repaid within three years, 2) intermediate-term loans that are usually for machinery, furniture, renovation or expansion purchases and repaid in five to seven years and 3) long-term loans that are commonly used for commercial mortgages or equipment purchases and repaid in 20 years or more.
- Learn from the professionals. Talk with the professionals at your local bank to learn more about your financing options. Whether or not you ultimately borrow from your bank, your banker can give you advice on your game plan and refer you to other valuable sources of information.