HOW TO RAISE MONEY FOR A SMALL BUSINESS FACT SHEET 8/96

One key to a successful business start-up and expansion is your
ability to obtain and secure appropriate financing. Raising
capital is the most basic of all business activities. But as many
new entrepreneurs quickly discover, raising capital may not be
easy; in fact, it can be a complex and frustrating process.
However, if you are informed and have planned effectively,
raising money for your business will not be a painful experience.

This information summary focuses on ways a small business can
raise money and explains how to prepare a loan proposal.

Finding the Money You Need

There are several sources to consider when looking for financing.
It is important to explore all of your options before making a
decision.

* Personal savings: The primary source of capital for most new
businesses comes from savings and other forms of personal
resources. While credit cards are often used to finance
business needs, there may be better options available, even
for very small loans.
* Friends and relatives: Many entrepreneurs look to private
sources such as friends and family when starting out in a
business venture. Often, money is loaned interest free or at a
low interest rate, which can be beneficial when getting started.
* Banks and credit unions: The most common source of funding,
banks and credit unions, will provide a loan if you can show that
your business proposal is sound.
* Venture capital firms: These firms help expanding companies
grow in exchange for equity or partial ownership.

Borrowing Money

It is often said that small business people have a difficult time
borrowing money. This is not necessarily true.

Banks make money by lending money. However, the inexperience of
many small business owners in financial matters often prompts
banks to deny loan requests.

Requesting a loan when you are not properly prepared sends a
signal to your lender. That message is: "High Risk!"

To be successful in obtaining a loan, you must be prepared and
organized. You must know exactly how much money you need, why you
need it, and how you will pay it back. You must be able to
convince your lender that you are a good credit risk.

Types of Business Loans
Short-Term Loans

Terms of loans may vary from lender to lender, but there are two
basic types of loans: short-term and long-term.

Generally, a short-term loan has a maturity of up one year. These
include working-capital loans, accounts-receivable loans and
lines of credit.

Long-term loans have maturities greater than one year but usually
less than seven years. Real estate and equipment loans may have
maturities of up to 25 years. Long-term loans are used for major
business expenses such as purchasing real estate and facilities,
construction, durable equipment, furniture and fixtures,
vehicles, etc.

How to Write a Loan Proposal

Approval of your loan request depends on how well you present
yourself, your business and your financial needs to a lender.
Remember, lenders want to make loans, but they must make loans
they know will be repaid. The best way to improve your chances of
obtaining a loan is to prepare a written proposal.

A good loan proposal will contain the following key elements:

General Information
* Business name, names of principals, social security number
for each principal, and the business address.
* Purpose of the loan - exactly what the loan will be used for
and why it is needed.
* Amount required - the exact amount you need to achieve your
purpose.

Business Description
* History and nature of the business - details of what kind of
business it is, its age, number of employees and current business
assets.
* Ownership structure - details on your company's legal structure.

Management Profile
* Develop a short statement on each principal in your business;
provide background, education, experience, skills and accomplishments.

Market Information
* Clearly define your company's products as well as your markets.
* Identify your competition and explain how your business competes
in the marketplace.
* Profile your customers and explain how your business can satisfy
their needs.

Financial Information
* Financial statements - balance sheets and income statements
for the past three years. If you are just starting out, provide a
projected balance sheet and income statemet.
* Personal financial statements on yourself and other principal
owners of the business.
* Collateral you would be willing to pledge as security for the loan.

How Your Loan Request Will Be Reviewed

When reviewing a loan request, the bank official is primarily
concerned about repayment. To help determine this ability, many
loan officers will order a copy of your business credit report
from a credit-reporting agency. Therefore, you should work with
these agencies to help them present an accurate picture of your
business. Using the credit report and the information you have
provided, the lending officer will consider the following issues:

* Have you invested savings or personal equity in your business
totaling at least 25 percent to 50 percent of the loan you are
requesting? (Remember, a lender or investor will not finance 100
percent of your business.)
* Do you have a sound record of credit-worthiness as indicated
by your credit report, work history and letters of recommenda-
tion? This is very important.
* Do you have sufficient experience and training to operate a
successful business?
* Have you prepared a loan proposal and business plan that
demonstrate your understanding of and commitment to the success
of the business?
* Does the business have sufficient cash flow to make the monthly
payments on the amount of the loan request?

SBA Financial Programs

The SBA offers a variety of financing options for small
businesses. The SBA's assistance usually is in the form of loan
guaranties - the SBA guarantees loans made by banks and other
private lenders to small business clients. Generally, the SBA can
guarantee up to $750,000 or 75 percent of the total loan value,
whichever is less. The average size of an SBA-guaranteed loan is
$175,000, and the average maturity is about eight years.

Whether you are looking for a long-term loan for machinery and
equipment, a general working capital loan, a revolving line of
credit, or a microloan, the SBA has a financing program to fit
your needs.

For More Information

Information is power. Make it your business to know what is
available, where to get it and, most importantly, how to use it.
Sources of information include:

U.S. Small Business Administration

* SBA District Offices
* Small Business Development Centers (SBDCs)
* Service Corps of Retired Executives (SCORE)
* SBA OnLine (electronic bulletin board)
* Business Information Centers (BICs)

The SBA has offices located throughout the United States. For the
one nearest you, look under "U.S. Government" in your telephone
directory, or call the SBA Answer Desk at (800) 8-ASK-SBA. To
send a fax to the SBA, dial (202) 205-7064. For the hearing
impaired, the TDD number is (704) 344-6640.

To access the agency's electronic public information services,
you may call the following:

SBA OnLine: electronic bulletin board - modem and computer
required
(800) 697-4636 (limited access)
(900) 463-4636 (full access)
(202) 401-9600 (D.C. metro area)
Internet: using uniform resource locators (URLs)
SBA Home Page: http://www.sba.gov
SBA gopher: gopher://gopher.sba.gov
File transfer protocol: ftp://ftp.sba.gov
Telnet: telnet://sbaonline.sba.gov
U.S. Business Advisor: http://www.business.gov

You also may request a free copy of The Resource Directory for
Small Business Management, a listing of for-sale publications and
videotapes, from your local SBA office or the SBA Answer Desk.

Other Sources

* State economic development agencies
* Chambers of commerce
* Local colleges and universities
* Libraries
* Manufacturers and suppliers of small business products and
services
* Small business or industry trade associations

Did you know the SBA ...

* Has a portfolio guaranteeing over $27 billion in loans to
185,000 small businesses that otherwise would not have had such
access to capital?
* Guaranteed over 60,000 loans totaling $9.9 billion to America's
small businesses in fiscal year 1995?
* Last year extended management and technical assistance to
nearly 1 million small businesses through its 950 Small Business
Development Centers and 13,000 Service Corps of Retired
Executives volunteers?
* Provided more than 45,000 loans totaling $1.2 billion to disaster
victims for residential, personal property, as well as business
losses in fiscal year 1995?
* Has 7,000 private sector lenders as partners providing their
capital to small business?
* Has increased its venture capital program with more private capital
in the past two years than in the previous 15 years combined?
* Provides loan guarantees and technical assistance to small business
exporters through U.S. Export Assistance Centers in 15 cities?
* Can respond to written small business questions through the U.S.
Business Advisor on the Internet (http://www.business.gov)?

Did you know that America's 22 million Small Businesses ...

* Employ more than 50 percent of the private workforce,
* Generate more than half of the nation's Gross Domestic Product, and
* Are the principal source of new jobs?

All of the SBA's programs and services are provided to the public
on a nondiscriminatory basis.

FS0055 (8/96)

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