Things to consider when financing a start-up

There are many different aspects of finances that a new business owner must consider. Asking yourself these questions and then formulating a clear plan will help you determine the best route, financing when you are trying to start your business. Here are some of the questions you need to ask yourself and things to consider when financing a start-up-

• Do you really need more capital, or can you manage existing cash flow more effectively?Many times in the process of starting a business, small business owners become panicked at not having loads of cash. It is crucial to determine if you really need to pursue more financing or if you can manage your existing cash a little better.
• What do you need the money for? How do you define your need? Do you need money to expand or simply as a cushion against risk? While everyone needs a certain amount to cushion them from, sometimes pursuing financing should only be done if there is a specific need. Your lender will be questioning in detail what you will be using the money for.
• How urgent is your need? This is crucial to determine since you can obtain the best terms when you anticipate your needs, rather than looking for money under pressure. Your business is much less appealing, to a potential lender, if you are trying to borrow during a crisis.It is crucial to figure out upcoming needs, rather then waiting, for a crisis to arise.
• How great are your risks? This is important to determine since all businesses carry risks, and the degree of risk will affect cost and available financing alternatives.You will need to have a clear understanding of exactly what your business risks are, to find the best source, for financing.
• In what state of development is the business? Needs are most critical during transitional stages. If you are beginning a business you will have far more needs then an established business. Potential lenders will be especially interested in your business plan at this stage.
• For what purposes will the capital be used? Any lender will require that capital be requested for very specific needs.You will need to have a clear and concise plan, for what the money will be used for. Simply assuming or guessing your needs will not inspire confidence in your lender.
• What is the state of your industry? Depressed, stable, or growth conditions, will require different approaches to money needs and sources. Keep in mind those businesses that prosper, while others are in decline will often receive better funding terms. You will need to do significant market research before approaching a lender.
• Is your business seasonal or cyclical? It is important to understand that seasonal needs, for financing generally are short term. One the other end of the spectrum loans that are advanced, for cyclical industries, such as construction, are designed to support a business through depressed periods.
• How strong is your management team? Management is often the most important element assessed by money sources. Lenders understand that they are not just lending money, for ideas, but the people who can make the ideas a reality. Many times potential start-up businesses have lost financing opportunities through lack of management, or weak management.
• How does your need for financing coincide with your business plan? Remember that if you don't have a business plan, make writing one your first priority. All capital sources will want to see your business plan for the start-up and growth of your business. A well thought out and well-written business plan is often the key to getting successful financing, for your start-up business.