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BUSINESS FINANCING
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Articles In This Section:· BUSINESS ADVANTAGES AND DISADVANTAGES OF STOCKHOLDER REPORTING OFCORPORATE INCOME
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Financing. Your business needs capital for two main purposes— to acquire fixed assets and for working capital. The latter is the operating capital you use for salaries and wages, for purchasing supplies and inventory, and for extending credit to your customers. If at this time you do not have a good idea of what your capital requirements will be, address your specific inquiries to The Small Business Administration in Washington, D. C. The SBA has a great volume of statistics available on business financing requirements for enterprises similar to your own and they will be glad to furnish these to you. Your first source of capital is, of course, your personal funds that you have set aside for your projected investment. But you may find you are in immediate need of more capital in order to purchase your fixed assets or to commence your operations.
You may borrow money on a debt basis from many varied sources. You may borrow from a relative or personal friend and give him a note. You can approach your local bank, speak to the loan officer and determine what type of bank loan is available to you. You may apply to small-loan companies as a source of capital. Many governmental agencies exist for the purpose of aiding the small businessman at the commencement of his operations or at times of stress. In addition, you can make inquiries to the following as a source of loans: factoring companies, commercial credit companies, sales finance companies, insurance companies, equipment manufacturers, wholesalers and suppliers, corporations seeking affiliates, branches, or outlets and community industrial development groups. Whatever your source of borrowed money, it is important that your requirements are satisfied at the least possible cost to you. This necessitates "shopping" for your borrowed money.
To give specific figures on what you should pay for loans is difficult. The charges vary tremendously (all the way from 1% a year for commercial paper houses, which make loans solely to large corporations, to 42% a year for some small-loan companies). In comparing prices, always reduce each to a percent per year effective interest rate on the average amount of the loan. This will avoid the pitfall of the many different ways in which companies quote their interest rates. Also, be wary of excessive investigation charges, service charges, minimum deposit requirements and collection charges on delinquent accounts. These are all part of your cost of borrowing money. If you borrow directly from a relative or friend and he requires a note, mortgage or any other type of security, be sure to consult with your attorney before signing any such instrument. Assuming the best of intentions on the part of such lender, your entire future credit standing may be affected by your having given him an excessive amount of security, i.e., tieing up your assets. Bank Loans—Mortgages. A bank is a highly recommended source for borrowing money. If in the past you have maintained good banking relations, you will experience no difficulty in obtaining reasonable loans. If you are locating in a new area be sure to establish a personal contact with your local bank as soon as possible. You will usually find your banker eager and able to offer you sage business advice, of course in the hope of securing your bank business.
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