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Financing Your Small Business

If it is at all possible, you should start your business without any funding beyond what you have available. Do this by starting slowly and in conjunction with present employment. Start your business by working evenings and weekends while keeping your present job as long as practicable. This way, if the business does not meet your expectations, you have not incurred debt and will still have a job!

However, depending on the nature of the business outside funding may be necessary. For example, expensive equipment or initial stock may be required. When determining your financing needs, remember that nearly everyone underestimates what is required, so be careful and do your planning accordingly.

And of course, don't forget to factor in contingency - sickness, bad weather, equipment breakdown, etc. Anything that increases the time line to profits! Best you figure on a year before you see a profit. Here are some items to keep in mind when preparing your startup budget:

Office equipment (Fax machine, computer)
Production equipment (for manufacturing)
Office supplies
Legal and CPA fees
Business licenses or permits
Lease deposits
Remodeling costs
Utility deposits (this can be quite large!)
Advertising and promotion
and the big one ... contingency!

What you want to avoid is having to find additional financing during your startup phase. It is generally easier to obtain financing the first time around!

There are two major forms of business financing.

1. Debt Financing. This simply means you get a loan from someone or somewhere and go into debt! You are obligated to repay the money.

2. Equity Financing. This involves "selling" a portion of your company to an outside investor. You have no obligation to repay the funds. In general, this type of funding is provided by venture capital firms.

The fact is, 99.99 percent of all small businesses will utilize debt financing since most "equity lenders" (venture capital companies) are interested in lending large amounts of money, generally a million dollars or more. This article will only consider sources for obtaining debt financing for your venture.

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