Financing for the Small Business
WHY FINANCING IS IMPORTANT TO YOUR BUSINESS
Many people dream of starting and managing their own business.
Some actually do start a business and achieve their dream; others
keep on dreaming. Why is this so? What separates the successful
entrepreneur from the unsuccessful?
In many cases, it seems to be whether the prospective business
owner has access to sufficient funds to turn the dream into
reality. You’ve probably heard stories about how many businesses
fail each year. Sometimes their failure can be traced to a lack
of financing. It is difficult to guess how many businesses never
even start because of that same lack of funding.
Just learning where and how to get the funds to start or expand
your business can be confusing, frustrating and time consuming.
The amount of financing may be as little as $100 or more than $1
million, based on the type of business. Many different businesses
can be started with a relatively small amount of money.
This guide will explain how, when and where to secure the capital
your business needs to be a success and will give you
step-by-step instructions on how to finance your business in the
most profitable ways possible. Finding money may be difficult at
times, but the economy depends heavily on small businesses like
yours. It is possible to get the money that your business needs,
and the first step to success is knowing how and where to look.
WHO CAN GET FINANCING TO START OR EXPAND A BUSINESS?
You can. Almost every valid business idea can be funded; it’s a
matter of knowing where to look. When a new business is a
success, everyone involved wins too. You as the owner certainly
benefit. So does the economy, since your business helps it to
grow. A successful business also creates new jobs and adds an
important product or service to the community. It is for all
these reasons that organizations and individuals may be willing
to invest in your business; as your business profits so do your
HOW MUCH MONEY WILL YOU NEED?
Every business is different, but it is still possible to get a
reasonable idea of how much cash your business is likely to need
by considering a few key factors.
Does Your Business Produce a Product or Provide a Service?
Initially, a service business will require less cash because it
will not have high material and equipment costs. If you intend to
manufacture a product, you must consider the type and amount of
direct materials and equipment needed and expenses incurred.
Who Will Provide Labor?
Do you intend to do most of the work yourself or will you hire
employees to assist you? Contributing your own time to the
business is one way to keep costs down. Later, when your business
is firmly established, you may wish to hire employees to take
over many of the day-to-day operations.
Do You Have Personal Funds to Invest in Your Business?
Almost all investors prefer or require that you contribute some
of your money to the business. This contribution of unborrowed
funds is called equity. There is no fixed percentage for this
equity contribution, but most lenders require at least 25 percent
of the total amount needed to establish the business. The amount
of equity required is also influenced by other credit factors,
such as management experience and adequacy of collateral.
Can You Provide for Your Personal Expenses While the Business Is
It is unusual for a beginning business to show a profit in the
first few years. It’s good strategy to plan to cover your
personal living expenses for at least six months while your
business is getting started. If your business is already
operating, it may be necessary to reduce your salary while you
try to expand. If you have your own funds set aside for your
personal expenses during these periods, you will have one less
expense for which you will need borrowed funds.
ESTIMATING YOUR EXPENSES
There are certain expenses that virtually all businesses must
incur. The following chart will help you estimate your typical
expenses. (This is not an all inclusive list. It provides some of
the more typical expenses.)
Office space rental $—————
Office equipment $—————
Office supplies $—————
Utilities (phone, electricity,
heat, water) $—————
Business licenses $—————
A manufacturing business will also have specific expenses related
to production. Therefore, the following expenses should also be
Raw materials $—————
Machinery and equipment rental $—————
Warehouse or factory space rental $—————
Total estimated costs $—————
ASSESSING YOUR FINANCIAL NEEDS
Once you have determined your expenses, you will need to estimate
what percentage of the funds you can supply yourself and what
percentage you must find elsewhere. At this point, the figure may
seem overwhelming. Don’t be discouraged. It’s far better to have
realistically assessed your situation early than to rush into a
new venture before you’ve planned adequately. Almost all
businesses need outside funds and yours probably will not be an
exception to the rule. You should prepare a month-by-month cash
flow projection for the entire first year, perhaps with the help
of your accountant or banker. If the projection is realistic, it
will clearly show how much financing you need. Local SBA offices
have cash flow projection forms; ask for Form 1100.
Yes, starting a new business can be risky, but it can also pay
big rewards both in personal satisfaction and in economic return.
TYPES OF FUNDING
DEBT OR EQUITY?
In deciding how to finance your business, you need to consider
– How much control of your new business can you comfortably
– Which facts will debt and equity financiers be interested
in? How do debt and equity requirements differ?
– How highly leveraged do you want your company to be? (The
higher the amount borrowed compared to the amount of
equity, the higher the leverage.)
In order to answer these questions, it is important that you
clearly understand how debt financing and equity financing work
and that you be aware of the advantages and disadvantages of each.
Debt is a direct obligation to pay something (cash) to someone
(an investor or lender). In exchange for having lent you the
money, an investor will expect to be paid interest. Obviously,
this means that you will repay more money than you have borrowed.
Therefore, an important feature of debt financing is the interest
rate you will be charged.
Interest Rate and Risk
The interest rate usually reflects the level of risk the investor
is undertaking by lending you money. Investors will charge you
lower interest rates if they feel there is a low risk of the
debt’s not being repaid. Investors will raise interest rates if
they are concerned about your ability to repay the debt or if you
have a history of slow payments to lenders as shown on your
personal or business credit reports.
It is important to realize a new business is likely to be charged
a higher interest rate than a well-established business because
the lender will feel a new business represents a greater risk.
Here’s an example of how interest rates can affect your loan
Example 1: A ten-year loan for $50,000 at 12 percent interest
requires monthly payments of $717.
Example 2: A ten-year loan for $50,000 at 15 percent interest
requires monthly payments of $807.
A payment difference of $90 each month, over 120 months, makes
the loan in Example 2 almost $11,000 more expensive over the life
of the loan.
What Do Debt Lenders Look For?
A debt lender will evaluate your loan request by considering
answers to several key questions:
– Can you offer reasonable evidence of repayment ability-
either established earnings (for an existing business)
or income (profit and loss) projections (for a new
– Do you have sufficient management experience to operate
– Do you have enough equity in the business? Equity
provides what lenders call a cushion for creditors.
– Do you have a reasonable amount of collateral (assets
to be acquired, residential property equity, etc.)?
Advantages of Debt Financing
The biggest advantage of debt financing is that it allows you,
the business owner, to retain control of your company. You are
therefore entitled to all company profits and have ultimate
decision-making authority. Since many entrepreneurs start a
business for exactly these reasons, a critical advantage of debt
financing is that it provides you with some financial freedom;
your debt is limited to the loan repayment period. After you have
repaid the borrowed money, the lender has no further claim on
Disadvantages of Debt Financing
The biggest disadvantage of debt financing is having to make
monthly payments on a loan. Cash may be scarce and expenses may
be higher than estimated during the early years of a new
business. Even so, the lender must be paid on time and there are
severe penalties for late or missed payments, such as additional
fees, a poor credit rating and the possibility that the lender
may call the loan due.
Another disadvantage of borrowing funds is the difficulty in
obtaining them. In general, lenders prefer to invest in proven
businesses. If your business is new, a lender may charge you a
high interest rate or may refuse to make the loan entirely. In
contrast, if you have been in business for a significant period
of time, you may find debt lenders very happy to extend loans.
Equity financing involves no direct obligation to repay any
funds. It does, however, involve selling a partial interest in
your company. In effect, an equity investor becomes your business
partner and will have a degree of control over how your business
is run. For example, the sale of stock, one type of equity
financing arrangement, typically works as follows:
Step 1 – You determine from your analysis that your business will
need more funds than you can provide.
Step 2 – You consider financing options and decide that you prefer
to sell an interest in your company rather than borrow
Step 3 – You arrange to offer a sale of stock. This can be much
more complicated than it sounds because you must comply
with an array of legal and reporting requirements for
the life of your business. After shares of your stock
are purchased, investors own a portion of your company,
which they can keep or sell to others.
What Do Equity Investors Look For?
Equity investors buy part of your company by supplying some of
the capital your business requires. Because they will own a share
of your business, equity investors are interested in the
business’s long-term success and future profitability.
Equity investors can resell their interest in your company to
other investors. If your business is doing well, they will be
able to sell their stake at a higher price than they paid and
make a profit. Legally, equity investors are more exposed to risk
than are debt investors. If your business fails, equity investors
stand to lose more money than debt investors, since creditors are
typically paid before owners in the event of business failure.
Since equity investors are taking the greater risk, they expect
to earn more on their investment than do debt investors.
Advantages of Equity Financing
With equity financing, you do not repay the money invested by
others (unless a payoff agreement is made at the time of
investment). This can be important when cash is at a premium.
Also, your ideas for making your business successful may carry
more weight with a potential equity investor than with a debt
investor. Since it is in an equity investor’s best interest for
your business to grow and expand, he or she will be more likely
to consider sound business ideas than will a debt investor, who
is more concerned with the security of the deal proposed.
Many people who are interested in starting or expanding a
business have more ideas than money; this can be an important
factor in favor of equity financing. In addition, equity
investors, with their genuine interest in your success, can be a
good source of advice and contacts for your business.
Disadvantages of Equity Financing
The biggest drawback of equity financing is that you give up some
control over your business. You may or may not find this
acceptable. Remember, when you accept equity partners, you are
selling part of your business. It may be very difficult to retain
control in the future.
Also, you may find your equity investors do not always agree with
your plans for the business. However, since they own part of your
business, you will have to consider their point of view, even if
you do not agree with their choices.
Finally, equity financing tends to be very complicated and
invariably will require the advice of attorneys and accountants.
A great deal of paperwork must be prepared and filed. For
example, public companies must comply with specific legal
regulations that govern their ways of doing business.
POSSIBLE SOURCES OF FINANCING
Most new small businesses start out by borrowing money rather
than by selling stock. If your business does well, you may at
some point combine both types of financing as your needs change.
Because knowing how, when and where to borrow is so important to
the success of your business, you should be aware of the variety
of possible funding sources. These fall into two basic
categories: private sources, such as your local bank, and public
sources, such as the federal government.
Private sources of financing are either personal sources (savings
or loans from friends and relatives) or external sources (debt
lenders, equity lenders and arrangements that combine debt and
Personal funds are the most likely, and the most typically used,
source of funds for a new business. Most lenders require that a
reasonable percentage of your own funds be invested in your
business, as an indication that you will work hard to make the
business a success. You will find most investors unwilling to
consider your request for funding if you have not contributed
cash. This can present a problem, though. Most entrepreneurs do
not have the personal resources to provide all of their initial
financing. They are not alone. Almost all business owners must
borrow money from outside sources.
It is helpful if you, as an owner, provide some of the funds from
your own savings. You may also want to consider such personal
sources as the cash value of a life insurance policy, a home
equity loan or even a credit card. Combining personal savings
with external sources of debt and equity will permit you to
benefit from the effects of leverage, i.e., using other people’s
money to earn a profit for yourself.
One of the biggest advantages of using personal savings to fund
your business is your easy access to those funds. There are no
loan applications to complete, no lenders to visit, no paperwork
to prepare and no interest payments to make. If available,
personal savings are a valuable source of capital for your
Finally, a big advantage of having your own start-up capital is
that it ensures that you retain ultimate control of and
responsibility for your business.
Friends and Relatives
Friends and relatives are often an important source of capital
for your business. Since they know you well, the terms of
repayment are likely to be more flexible than those of strangers.
Keep it formal. It’s a good idea to prepare a formal agreement
when a friend or relative is willing to invest money in your
business. This will make the relationship professional and will
help to avoid future misunderstandings about how much was
borrowed or when it should be repaid.
The investment can take the form of a direct loan or an equity
investment. Review the previous section on debt versus equity
financing to determine which arrangement will be best in your
Based on their personal relationship and their impression of your
business judgment, friends and relatives may be willing to invest
in your business even when others may not. Beware, however.
Because they know you well, they may wish to be more involved in
the day-to-day operations of the business than you would like.
Friends or relatives may feel their investment entitles them to a
routine say in how the business is run, even though you intend to
repay the loan.
When it is necessary to look to someone other than yourself or a
close friend or relative for business funds, it helps to be aware
of other sources.
Banks are financial institutions that accept deposits and make
loans. They fall into several categories, such as savings and
loans, thrift institutions and commercial banks. Knowing the
category in which they include themselves can tell you a lot
about the kinds of loans these banks are interested in making.
Savings banks are more experienced in dealing with consumer
loans, such as home mortgages and automobile loans. Commercial
banks have more experience and interest in business loans. This
doesn’t mean that you can’t go to a savings bank for a business
loan. It may be a good choice. Just be sure to consider that
bank’s primary focus and level of experience with your type of
request. Probably the most important point to keep in mind when
dealing with a bank is that bankers don’t like risk. Their
primary concern is always the safety of their funds.
How do they operate? Banks may be one of the first sources that
come to mind when you begin searching for additional business
capital. Certainly, they will meet your most basic condition:
they have money available to lend. However, it may be difficult
for a new business to borrow from a bank since lenders usually
prefer to lend to established businesses. Keep in mind, the first
responsibility of a bank is to protect its depositors. As a
result, bankers tend to be very cautious about lending money.
Banks come in all shapes and sizes and there are some real
differences among them. Small community banks with two or three
branches may operate quite differently from large commercial
banks with hundreds of loan offices. You will want to carefully
review the differences among banks before you select a particular
one. Each type offers certain advantages. A commercial bank may
be more experienced and familiar with a business loan request,
but a community bank may know you personally and have more
confidence in your ability to repay your debt.
Where can you get more information? Chances are you’re already
familiar with several banks in your area. It’s extremely helpful
to approach a bank with which you already have a savings or
checking account or a personal loan. For banks outside your area,
you may want to consult a banking directory, such as Rand
McNally’s Bankers Directory or Polk’s World Bank Directory. Most
libraries have copies. Directories list the name, location,
assets, liabilities and officers of banks.
Credit unions are financial institutions developed by the members
or employees of a company, labor union or other group. Their
overall goal is service to their members, as opposed to profit
making. As a result, their interest rates and other terms may be
more favorable than those offered by a bank. Credit unions are
regulated by the National Credit Union Administration.
What are the advantages of a credit union? The company for which
you or another family member works may have a credit union. If
you decide to start your business while you are still working for
a large company, you may be able to borrow some of the capital
you will need from the credit union. As your business becomes
more profitable and better able to support you financially, you
may decide to concentrate all your energies and time on your
Credit union interest rates are often lower than the rates
charged by other lenders. The amount you will be able to borrow
from a credit union may not be large, but this source of funds
may be helpful in making initial purchases for your business.
Also, a loan application through a credit union may be more
likely to be approved as you may be known to the individual
evaluating your loan request.
Where can you get more information? If you’re employed, ask the
human resources department of the company where you work about
your eligibility to join a credit union. There are directories
available at your local library listing all of the credit unions
in the United States.
Consumer Finance Companies
Consumer finance companies make small personal loans secured by
collateral. Unlike banks, they do not accept deposits and they
lend under the jurisdiction of each state’s small loan
regulations. Consumer finance companies will often consider loans
with 100 percent financing because the loans are secured by an
How do they operate? Consumer finance companies charge higher
interest rates and processing fees than banks and credit unions
but can be more flexible about approving requests. Loans from
this source are more expensive because they are considered to be
more risky. In some cases, the interest rate you will be charged
will be the highest allowed by law for your state.
Consumer finance companies are often approached by people who
have poor credit ratings. Certainly, if you want to start a
business and your credit rating is questionable, you will find
consumer finance companies a more likely source of funds.
However, this does not mean that you should only borrow from a
consumer finance company if you have credit problems.
You should be aware that loans from this source will usually not
exceed several thousand dollars. Also, keep in mind that if you
can’t repay your debt, the item that you purchased with the funds
will be seized.
Where can you get more information? The classified advertising
section of your telephone directory lists consumer finance
companies under the heading of Loans. Call and request a meeting,
or ask them to send you written information.
Commercial Finance Companies
The primary purpose of a commercial finance company is to provide
loans to purchase inventory and equipment. This can be a useful
resource, particularly if your business will manufacture a
product or act as a wholesaler. Commercial finance companies are
similar to consumer finance companies but concentrate on business
loans rather than consumer purchases.
How do they operate? Like consumer finance companies, commercial
finance companies charge higher rates of interest than banks.
They also may be more willing than banks to approve your loan
request. Commercial finance companies will require your debt be
collateralized. This means if you purchase a computer with the
funds you have borrowed, they will have a direct claim on your
computer. If you can’t make your monthly payments, the commercial
finance company will be entitled to take your computer and sell
it to recover its investment.
Where can you get more information? Check the telephone directory
for a list of commercial finance companies in your area. You
should research your rights when borrowing from a loan company by
reading your state’s laws concerning debt repayment.
When a vendor allows you to buy a product and to delay paying for
it, this is known as trade or vendor credit. Vendors offer this
service to help make their products more attractive and to induce
you to buy from them rather than elsewhere. Offering easy credit
terms encourages sales. Keep in mind that the vendor is in
business to make money. There may be a hidden cost for flexible
credit terms in the form of slightly higher prices.
How does it work? Trade credit is one of the most readily
available sources of financing for your business. In many
situations, you will be able to purchase supplies and equipment
directly from a vendor and spread your payments over several
months or years. Often it is possible to make no or a minimal
down payment and to avoid interest charges as well. Even
suppliers who will not extend credit in the beginning of your
relationship may be very willing to do so after you have placed
When you are trying to pay for equipment and/or supplies that
your business needs, trade credit can be invaluable. Office
furniture, computers, certain raw materials and manufacturing
equipment are examples of products that can be purchased with
Where can you get more information? Discuss payment terms with
vendors with whom you deal or plan to deal. There may be dramatic
differences in terms among different suppliers. Talk to several
suppliers before making a decision. Remember to ask what types of
credit they offer and if they grant a discount for prompt
payment. Also, be sure to compare prices. Vendor financing is not
desirable if you are being charged substantially more for the
same product you can purchase elsewhere more cheaply with cash.
Insurance companies are a possible source of financing for your
business because they make commercial loans as a means of
investing unused portions of their income. Generally, insurance
companies make term loans and mortgage loans.
How do they operate? If you borrow from an insurance company, you
can expect terms and interest rates similar to those available
from a commercial bank. Insurance companies can provide your
business with a large amount of capital at market interest rates,
but you must have assets sufficient to cover the debt, plus 20-30
percent extra. In effect, you mortgage your property to free cash
for your business. This allows you to retain title to the
property while freeing cash invested in it. Insurance companies
usually have high loan limits; this makes them a good source of
funds if you need a large supply of capital.
Where can you get more information? Speak with your insurance
agent or ask friends to make recommendations. You may also wish
to request information packets from insurance companies’ loan
A factor company can be a useful source of funds if you are
already in business and have made sales to customers. Factor
companies purchase your accounts receivable at a discount,
thereby freeing cash for you sooner than if you had to collect
the money yourself. You transfer title of your accounts
receivable to the factor company in exchange for a cash payment.
How do they operate? Factor companies provide two types of
financing alternatives: recourse factoring and nonrecourse
In recourse factoring, you retain part of the risk for ultimately
collecting the debts owed to you. The factor company assists you
by speeding up the process. For example, the factor company
purchases your receivables and advances you cash while the
accounts are being collected. However, if your customers do not
pay, you will be held responsible for repayment to the factor
In nonrecourse factoring, you sell all rights and obligations
concerning your accounts receivable. The factor company purchases
your receivables and collects the debts owed. If a customer does
not pay, you will be under no obligation to the factor company.
Factor companies can be a useful source of funds for a new or
existing business. They are not appropriate as a means of seed
capital to start a business because they require that you have
accounts receivable to sell.
Where can you get more information? Factor companies often
advertise in the business sections of newspapers. Usually the
advertisement will say We buy accounts receivable or something
similar. Make sure you work with a reputable company that will
not alienate your customers by harassing them for payment.
A leasing company is a business that rents various types of
equipment to businesses and individuals. By renting rather than
buying the equipment your business will need, you will be able to
avoid many capital expenditures associated with the purchase of
How do they operate? Many leasing companies require a down
payment or several months’ prepaid rent. Some, however, may allow
you to lease equipment without requiring any prepayment. This
depends upon the relative size or worth of the asset leased. The
small amount of cash needed to secure the use of equipment for
your business makes leasing very attractive to many business
owners. However, since you do not actually own the equipment, the
leasing company may repossess it if you miss a payment.
An advantage provided by leasing is that you will need little or
no cash to secure equipment and you will be able to upgrade your
equipment more easily than if you purchased it. If your industry
experiences rapid changes in technology, leasing may help you to
avoid the expense of purchasing quickly outdated equipment.
Obviously, you will not be able to meet all of the financing
needs of your business by leasing. You will still need additional
funds for ongoing expenses, such as employee salaries. Leasing,
however, can allow you to hold on to the cash you may otherwise
have spent on equipment, and this cash savings can be used in
other, less easily financed, areas.
Where can you get more information? Many equipment suppliers
offer leasing arrangements in addition to actual sales. Discuss
with suppliers and vendors what types of items they lease and
what terms they offer. A service contract can usually be
purchased for an additional charge.
Venture Capital Firms
Basically, venture capital is an investment in an unproven
business. Venture capital firms provide equity funds to new and
young companies. This immediately separates venture capital firms
from investment firms, which prefer to invest in existing,
financially secure businesses. Venture capital firms do not make
outright loans. Instead, they buy an equity interest in the
business that gives them the same advantages and disadvantages
associated with equity arrangements.
How do they operate? Venture capitalists are looking for two
basic things when considering whether to invest in your business:
– High return – Because venture capitalists are willing to
take unusual risks by investing in a new business, they
require unusual returns as well, perhaps seven to ten
times their original investment within five to seven years.
– Easy exit – Venture capital firms will realize a profit by
selling their interest in your business at some future
In general, venture capital firms are most interested in
investing in new technology and can typically supply large sums
of money. Venture capitalists are not passive investors. They
play an active role in the strategic planning phase of your
business and seek continuing involvement. They will also expect
to be fully informed about operations, problems and whether your
joint goals are being met.
Where can you get more information? Keep in mind that venture
capitalists have extremely rigid investment standards and
relatively few businesses qualify. Still, this capital source is
worth pursuing because venture capitalists specialize in start-up
financing and have access to large sums of money. There are many
books on venture capital in your local library.
Closed-end Investment Companies
A closed-end investment company is similar to a venture capital
firm but has smaller sums of money available to invest.
Closed-end investment companies are most likely to invest in a
proven business, but some specialize in new businesses.
How do they operate? Like venture capital firms, closed-end
investment companies are interested in purchasing the stock of
your business. Keep in mind what this means: you will be selling
a portion of your business and giving up some control as well.
Closed-end investment companies are called closed because they
have a fixed amount of money available to invest. The investment
company has sold shares of stock to private investors, and these
funds are available to invest in your business. As with other
types of stock purchases, if you make a profit, the stockholders
make money on their investment.
Because closed-end investment companies have limited amounts of
funds available to lend, they may or may not be looking for new
investments. It depends upon whether they have cash available at
a particular time.
Where can you get more information? Legitimate closed-end
investment companies are registered with the federal government.
Your banker, accountant or attorney may be able to recommend
Corporate Capital Sources
In order to generate additional profits, corporations sometimes
establish corporate venture capital firms, which operate within
the overall corporation. These firms differ substantially from
traditional venture capital firms. One of the biggest differences
is that they are not motivated purely by profit, at least not in
the immediate sense. A corporate capitalist firm typically seeks
access to new markets in addition to realizing a financial gain.
How do they operate? Corporate capital firms operate in much the
same way as traditional venture capital firms. The corporation
makes an investment in your business in exchange for an ownership
interest. In this way, the needs of both the corporate investor
and the entrepreneur are met. The corporation benefits by
accessing new markets; the business owner benefits by receiving
In addition, associating your business with a corporate capital
source can add credibility when you seek funds elsewhere. The
expertise of the corporation can also be useful in marketing,
manufacturing, product development, etc. Its experience
represents a valuable asset for your business. Corporate
investment in your business will probably take one of several
– Complete purchase – An outside corporation buys your
business in its entirety, and you forfeit all rights
– Partial purchase – An outside corporation purchases
part of your business’s stock.
– Joint venture – You and an outside corporation create
a partnership, typically one in which you run the
business and the corporation provides capital and
– Licensing agreement – As the business owner you retain
control of your business but receive cash for work
performed on contract. Sometimes entering into a
licensing agreement means giving up the rights to
products developed under this agreement.
Where can you get more information? A useful source of further
information on corporate capital suppliers is Corporate Venturing
News, published by Venture Economics, Inc., 16 Laurel Avenue,
Wellesley Hills, MA 02181. You can also contact large
corporations in your area to inquire if they invest in new
In many communities, groups of business people form organizations
to invest in new and existing businesses, usually on the local
level. These clubs are typically less formal than a professional
organization might be.
How do they operate? Private investors pool resources to make a
business investment. Because the group invests together, small
investors are able to make funds available to your business on a
scale that would be difficult or impossible if they were
Investment conditions and standards vary from club to club. As
with other equity arrangements, you will give up a percentage of
your business in exchange for funds received from the investment
Where can you get more information? For additional information
contact the National Association of Investors Corporation, 1515
East 11 Mile Road, Royal Oak, MI 48067, (313) 543-0612.
Investment clubs are often informally structured; contact a local
attorney or broker to find a club in your area.
Employee Stock Ownership Plans (ESOPs)
If your business has employees, it may be possible for you to
sell stock in your business directly to them. Like other equity
arrangements, you will give up a degree of control. But with an
ESOP, you will share control with your employees rather than with
outside investors. This can be beneficial because your employees
will have a vested interest in making your business successfuland
employees can have a large impact on operations.
How do they operate? An ESOP operates in a similar fashion to
other equity sales. Employees purchase shares of stock and
thereby gain an ownership interest in your business. You gain
capital to be used for expansion. Employees may also offer to
take a reduction in salary or benefits in exchange for partial
ownership in the company. This is a good point to consider if you
anticipate problems in meeting a payroll but cannot reduce staff.
One obvious drawback to an ESOP is that a plan of this type is
workable only after you have hired employees. It is not an option
when your business is in the very early stages.
Where can you get more information? Both your attorney and
accountant can provide information on how to structure an ESOP.
They will be very useful in helping you consider all relevant
aspects and potential advantages and disadvantages of the
decision. More information is available from the ESOP
Association, 1100 17th Street, NW, Suite 1207, Washington, DC
Private Investment Partnerships
A private investment partnership is an arrangement in which one
or more individuals agree to provide funding for another
individual’s business. The role of the partner(s) providing the
funding is limited to supplying capital. Partners are not
responsible for any debts your business incurs and will typically
not play a role in managing the day-to-day operations of your
How do they operate? Private limited partnerships with 35 or
fewer members are not required to register with the Securities
and Exchange Commission. The typical investment is $20,000 or
more per partner. The general partner (you) is responsible for
overseeing operations and for making decisions that will have an
impact on the business and its performance. The limited or
passive partners provide you with funds and expect a substantial
return on the investment. However, the return they will require
may be less than that required by a venture capital firm.
Where can you get more information? Several computer data bases
exist to match entrepreneurs with investors. In this case, your
banker, attorney and accountant may be useful sources of
It is also possible to find investors by joining local business
organizations and clubs, where you may meet individuals with
money available to invest.
Combining Debt and Equity Financing
Customers as a Source of Funds
In some industries, potential purchasers of your service may be
interested in offering financial help as you start or expand your
business. They are interested because an additional supplier
(you) provides them with another source for a product or service
they need. The addition of your business to the market may also
increase price competition, resulting in lower prices for the
customer. Each of these aspects translates into important
benefits for the customer, just as the customer’s funds translate
into important benefits for you.
How does it work? Both direct loans and equity interests are
possible. Again, a direct loan must be repaid, while an equity
sale diminishes your control. It is a good idea to consider the
advantages and disadvantages of each and prepare a tentative
You may need to approach potential customers yourself, or the
customer may come directly to you with an offer. Be wary if the
customer proposes that you sell your product or service
exclusively to him or her in exchange for financial help.
Securing exclusive rights to your products will give the customer
more control over your business operations and pricing than you
may wish. This type of arrangement will shrink your potential
market tremendously. If the customer stops buying from you for
any reason, your business may be in serious jeopardy because you
have not cultivated other customer relationships.
Where can you get more information? Ask the customer directly.
You may find a customer more willing to supply you with financing
than you would expect. The customer receives a return on his or
her investment and gains a supplier. These are very strong
incentives for most businesspeople.
In addition to the private sources we’ve discussed, there are a
number of government financing sources that may be available to
you and your business. A government agency may be interested in
financing new businesses that will have a direct impact on the
agency or the client population it serves.
If your business produces a product or service you feel would be
of interest to a government agency, contact the agency directly
and request information and applications for grants and other
possible business development resources the agency may control.
It may be helpful to investigate some or all of the following
general sources of assistance available through the government.
U.S. Small Business Administration (SBA)
The SBA may provide a loan guaranty that will help you borrow
from a bank. Essentially, the SBA guarantees the lender that up
to 90 percent of your debt will be repaid. This helps the lender
feel more comfortable about making you a loan. Although the SBA
primarily guarantees loans made by banks and other lenders, there
is a limited SBA direct loan program, generally for Vietnam-era
and disabled veterans, businesses located in areas of high
unemployment and handicapped individuals. Funding for this
program is subject to congressional appropriations.
Loans backed by the SBA usually offer reasonable interest rates
and long repayment terms, making them very desirable. It is the
SBA’s goal to assist those businesses unable to borrow
successfully from conventional lenders without the assistance of
the government. You can get additional information on SBA
programs by contacting the SBA field office in your area.
Small Business Investment Companies (SBIC)/Specialized Small
Business Investment Companies (S-SBIC)
The federal government may also be able to help you with
financing through an SBIC or S-SBIC that makes direct loans to
entrepreneurs for start-up and expansion as well as equity
investments. SBICs and S-SBICs are licensed by the SBA and
operate under its guidelines. They are privately owned
organizations, chartered by the state in which they operate.
There are several conditions your business must meet in order to
be considered for assistance from these sources. Typically, an
SBIC or S-SBIC is less averse to risk than a bank. They can
provide your business with both loans and equity investments, as
well as technical assistance. You can obtain the Directory of
Operating Small Business Investment Companies by visiting the SBA
regional or district office nearest you or by writing to: Deputy
Associate Administrator for Investment, U.S. Small Business
Administration, 1441 L Street, N.W., Washington, DC 20416.
More information is available by contacting the National
Association of Small Business Investment Companies and the
American Association of S-SBICs, both located in Washington, D.C.
Economic Development Commission (EDC)
The Economic Development Commission, a part of the U.S.
Department of Commerce, lends to new and existing businesses in
an effort to create new jobs in economically deprived regions.
There are a number of specific conditions that must be met in
borrowing through the EDC, including location. You can contact
the EDC through the U.S. Department of Commerce in Washington,
D.C., or the local office of the Department of Commerce.
A Last Note about Government Sources
As with all types of financing, government sources have diverse
requirements. Learn which agencies and/or programs might be a
possible financing source for your business and then contact them
for the appropriate paperwork to set the process in motion.
ALTERNATIVE WAYS TO OWN A BUSINESS
In addition to the possibilities already mentioned, you may want
to consider two slightly different ways of owning and operating
your own business: purchasing either a franchise or an existing
Buying a franchise gives you the right to sell a particular
product or service. You retain a portion of your profits and a
portion is paid to the overall organization that sold you the
How do they operate? One of the easiest methods of becoming a
sole proprietor and acquiring the needed capital at the same time
is to purchase a franchise. It is possible to start some
franchises with relatively little money and to obtain start-up
financing directly from the company selling the franchise. If a
direct loan is not possible, the seller of the franchise may be
willing to cosign a loan with another lender.
The seller of the franchise supplies you with materials, a
recognized brand name and sales and marketing assistance. Some
franchises are fairly inexpensive while others may cost hundreds
of thousands of dollars.
Strict limits on innovation. The relative ease with which you can
become the owner of a franchise is not without its price. By
purchasing a franchise, you give up a high degree of control over
your business. Most often the product and operations of a
franchise are strictly regulated and there is little room for new
Purchasing a franchise is a sort of middle ground between working
for someone else and being an independent business owner. You
should, of course, evaluate franchise opportunities as carefully
as you would any other type of business. Profit potential, as
well as the cash needed to get started, should be considered in
Where can you get more information? Directories of every
franchise in the United States can be found in your local
library. Information on franchises is also heavily promoted at
trade shows and in business magazines. Virtually every type of
business imaginable can be purchased through a franchise.
Alternative Ways to Own a Business
Purchasing an Existing Business
One path to becoming an entrepreneur is to buy an already
operating business from its present owner. Especially with regard
to financing, buying an existing business may have certain
benefits over starting a business from scratch. In many cases,
the current owner will finance the sale of the business.
For example, you read a newspaper advertisement of a small
restaurant for sale in a good location. The owner is willing to
sell his or her interest in the business for $15,000 if the buyer
takes over existing business obligations, e.g., space rental,
employee wages, etc. After visiting the restaurant and carefully
analyzing the business potential, you decide you are interested
in owning this business and decide to purchase it.
How can you pay for the business? Let’s assume that you don’t
have $15,000. You have calculated that by using the money you
have saved, you can offer the owner $3,000. But this still leaves
you $12,000 short. What are your alternatives?
1. Ask the owner to finance the $12,000.
2. Try to find a way to borrow the money using the methods
and sources outlined above.
3. Offer the owner less than the asking price, thereby
reducing or eliminating the amount of cash needed.
No matter which alternative you choose, remember that the owner
of an existing business often will help you to find financing. An
owner who wants or needs to sell a business will be anxious to
help you find a way to make the purchase possible.
Why is it being sold? Learn why the owner is selling the
business. Make certain that the reasons do not spell disaster for
the next owner. You may have nothing to worry about if the
present owner is selling in order to retire; however, if he or
she is selling because the business is not profitable due to few
customers and/or poor location, you will need to realistically
assess your ability to improve the situation. If you do not have
a carefully researched plan, you may soon find yourself repeating
the mistakes of the previous owner.
Where can I get more information? The classified section of your
newspaper is a good source of information on businesses for sale.
You may also want to contact a business broker who, like a real
estate broker, sells businesses and properties for a commission.
The commission is paid by the seller of the business, which means
that the broker is being paid to represent the seller rather than
you, the buyer.
HOW DO YOU ACTUALLY RECEIVE FUNDS FROM FINANCING SOURCES?
All of the sources of financing discussed have one critical point
in common: they all require that you sell your ideas and plans to
someone who controls the money you need. In this sense, you
shouldn’t underestimate the importance of being a good
salesperson. The responsibility is on your shoulders to share a
sense of excitement about your business with the person or
organization evaluating your request. This remains true
regardless of whether you decide on debt financing, equity
financing or a combination of the two.
If you plan to borrow money, there are certain elements of the
borrowing process that are critical to your success.
You and the investor have different goals. If you are starting or
have already started a business, chances are you strongly believe
you will be successful. The investor, however, will not have this
same degree of confidence in you and needs to be convinced of
your sincerity and of the validity of your ideas. The lender’s
goal is protection of his or her investment, while yours is more
likely financial growth.
The investor will need documentation of virtually every statement
that you make. If you say your business will grow by 10 percent
per year for five years, be prepared to support your claim with
facts and figures.
You and the investor need each other. Clearly, you need the
investor, because he or she controls whether you will have access
to funds integral to the success of your business. Without
financing, your ideas may remain just that. But there’s another
side to the coin: the investor needs your business. He or she
makes money from interest, fee income and/or profit generated
from your business. Keep this point in mind: the investor cannot
thrive without you anymore than you can thrive without the
Getting financing takes time. Be prepared to wait weeks or months
before any money actually changes hands. Don’t approach a lender
when you are desperate for cash. You’ll greatly harm your chances
of having your request approved. Instead, plan for your financial
needs well in advance.
Getting financing takes persistence. You may be turned down many
times before someone agrees to provide funds. Don’t be
discouraged; there are many sources who may be willing to help
finance your business. Remain determined and don’t give up after
just a few tries. If your business ideas are good ones, you will
eventually be successful in obtaining financing.
Ten Rules of Negotiating for Financing
1. Prepare a comprehensive business plan.
2. Be prepared to explain uses and benefits of the
3. Speak to the appropriate person.
4. Do not overstate your financial strength.
5. Give complete information about your business.
6. Seek a lender with whom you feel comfortable.
7. Negotiate interest rates and fees.
8. Give an impression of confidence and competence.
9. Carefully check all terms of the agreement.
10. Dress conservatively.
1. Prepare a comprehensive business plan, including an income
(profit and loss) projection for one year and a cash flow
projection. An overview of competition, composition of man-
agement and staffing, marketing plans and pricing strategy
are also important. Lenders respond favorably to applicants
who know where they are going and who have done their home-
work. See the Appendix: How To Write A Business Plan for
an outline of material that should be included in the busi-
ness plan. Use SBA Form 1100 for Cash Flow Projection.
If your strategy can be adjusted to alternative amounts of
financing, request the preferred amount first and be prepared
to submit the alternative plan if you meet obstacles.
2. Be prepared to explain uses and benefits of the porposed
Summarize the information in the Sources and Funds Statement
in your business plan, and provide specific examples and
supporting data for uses of the funds (e.g., estimates, list
prices for equipment, etc.).
3. Speak to the appropriate person. With banks, as well as with
all other sources, find out who will make the ultimate
decision about your financing request, and then deal with
this person directly. It is a waste of time to present your
loan request to an individual who does not have the personal
authority to lend you funds.
In banking, most commercial lenders have what is commonly
referred to as a lending limit. This is the amount of money
they are able to lend on their own authority, without having
the request approved by any other parties. It is perfectly
acceptable to ask the amount of the lending limit even before
setting up an appointment and, what’s more, it’s advisable.
4. Do not overstate your financial strength. Be realistic! Guard
your credibility like the very real asset it is. Remember,
the investor will almost certainly verify everything you say.
If you tell him your first quarter sales were $4,500, be sure
that this is true. Once your integrity and honesty are called
into question, it will be difficult, if not impossible, to
regain your lost reputation.
Even if your misstatements are the result of a legitimate
error rather than a deliberate attempt to make your business
appear more profitable, the investor may feel that this is a
good reason to question your overall business judgment. It’s
a very good policy to never say anything you can’t support
5. Give complete information about your business. It is wise to
present all the information the investor requests. Most
investors are required to have certain documents on hand to
invest. Some are requested just as a formality and some are
thoroughly analyzed. Unfortunately, there is no way for you
to tell the difference between the two. Prepare all documents
carefully and double check all facts and figures before
turning over the information. It will be far better for a
negative aspect of your business to be handled openly than
for it to come up later under less favorable circumstances.
This does not mean that you are under obligation to reveal
all your fears and concerns about the business and its
operations. It does mean, however, that you have an
obligation to disclose material or relevant facts about
6. Seek a lender with whom you feel comfortable. There can be
wide variations among investors. Because you are turned down
by one source does not mean that you will be turned down by
the next. Avoid putting all of your eggs in one basket.
Carefully scrutinize potential investors in the same way that
you investigate any other major business decision. Investors
and lenders are just like everyone else! You will feel
good about working with some and not with others. Be sure to
settle on one who can give adequate attention to your account
and who explains all aspects of the financing relationship
clearly and thoroughly.
7. Negotiate interest rates and fees. We’ve already noted how a
small difference in interest rates can have a big impact on
your payments. Fees, too, can drastically alter the total
amount you are paying for financing. Typically, you will be
asked to pay points, which are a percentage of the total
loan, due at the time the loan is originated. If, for
example, you borrow $20,000 and are told that there is a 2
percent origination or commitment fee, you can expect to pay
$400 in fees to borrow from this source. The length of the
loan is also important. The shorter the term, the less total
interest you will pay.
All lenders charge different rates and fees. Be aware of what
you are paying. If the lender seems receptive, attempt to
reduce the charges you will incur. In the worst case, the
lender will tell you that the lending conditions cannot be
changed. You’ve lost nothing by trying to minimize your
8. Give an impression of confidence and competence. No one likes
to borrow money. It is perfectly reasonable for you to feel
a little nervous when applying for financing, but be careful
not to let your nervousness cloud your judgment. The investor
needs to have a high degree of confidence in your ability to
repay the debt or generate a profit. Be sure of your facts
and rehearse what you will say. Give some thought to the
types of questions you may be asked and consider the best
Again, remember that the investor is dependent upon you, just
as your business is dependent upon the investor. You are both
in a position to help one another.
9. Carefully check all terms of the agreement. Be sure you know
what you are signing. It is perfectly appropriate to ask that
your attorney or accountant review the conditions of the
agreement. If you or your advisors do not feel comfortable
with some aspect of the agreement, don’t hesitate to raise it
as an issue. The time to discuss alternatives is before the
deal is finalized. Once you have signed an agreement, you are
legally bound by it.
The investor will prepare the agreement for self-protection.
Given this, it is not unreasonable to expect the terms to
favor the investor. To a certain extent, this is inevitable,
but try to prevent the insertion of any clauses or conditions
that may present a serious hardship for you.
10. Dress conservatively. Like almost everyone, investors and
lenders feel most comfortable around people like themselves.
For this reason, it is a good idea to dress carefully when
meeting with an investor, even if you do not normally do so
when running your business. A suit and tie are recommended
for men, a jacket and skirt for women. Avoid overly elaborate
accessories. Remember, you are trying to give an impression
of conservative good judgment. Dress to fit the environment.
SOME FINAL POINTS
No one ever said that starting a business would be easy. Without
a doubt, finding the money to start or expand your business
requires hard work and determination. It may be the largest
obstacle you will face when planning to own or expand a business.
Don’t despair; financing is available. It’s all a matter of
knowing where to look, and now you know!
Perseverance makes all the difference. Most successful
entrepreneurs have been turned down many times for financing.
Remember, it is your job to sell your ideas and to pursue every
possible means of securing capital. If you truly wish to finance
your business, and if your ideas are good ones, you will be
Don’t hesitate to consider a variety of financing alternatives.
Most of the sources described will not alone meet all of your
needs, nor are they intended to. It is far more likely that you
will find a number of sources interesting and you may be able to
borrow successfully from all of them. Most businesses use a
combination of financial sources to adequately fulfill their
changing needs for capital. Be aware of the advantages and
disadvantages of each approach and determine which ones seem most
relevant to your situation. Above all, remain determined. If you
persistently seek financing you will eventually obtain it.
APPENDIX A: HOW TO WRITE A BUSINESS PLAN
The following pages provide a suggested outline of the material
that should be included in your business plan. Your final plan
may vary according to your needs or because of the individual
requirements of your lender.
What Are the Benefits?
Every business can benefit from the preparation of a carefully
written plan. There are two main purposes for writing that plan:
1. To serve as a guide during the lifetime of the business. It is
the blueprint of your business and will provide you with the
tools for analysis and change.
2. A business plan is a requirement if you are planning to seek
a loan. It will provide potential lenders with detailed
information on all aspects of your company’s past and current
operations and provide future projections.
Business Plan Outline
I. Cover sheet
Serves as the title page of your business plan. It
should contain the following:
– Name of the company
– Company address
– Company phone number (include area code)
– Logo (if you have one)
– Names, titles, addresses, phone numbers
(include area code) of owners
– Month and year your plan was issued
– Name of preparer
II. Statement of purpose
(Same as executive summary.) This is the
thesis statement and includes business plan
objectives. Use the key words (who, what,
where, when, why, how, and how much) to
briefly tell about the following:
– What your company is (also who, what,
where and when).
– What your objectives are.
– If you need a loan why you need it.
– How much you need.
– Why you will be successful.
– How and when you plan to repay your loan.
III. Table of contents
A page listing the major topics and references.
IV. The business
Covers the details of your business. Include
information about your industry in general, and
your business in particular. Address the following:
– Legal structure – Tell what legal structure you
have chosen and state reasons for your choice.
– Description of the business – Detail your business.
Tell about your history present status and future
projections. Outline your product or service in
terms of marketability. Project a sense of what
you expect to accomplish in the next few years.
– Products or services – Give a detailed description
of your products from raw materials to finished
items. Tell about your manufacturing process. If
you provide a service tell what it is how it is
provided and why it is unique. List future products
or services you plan to provide.
– Location – Describe site and why it was chosen.
(If location is important to your marketing plan
focus on this in the marketing section below.)
– Management – Describe who is behind the business.
For each owner tell about responsibilities and
abilities. Support with resumes.
– Personnel – Who will be doing the work why are they
qualified what is their wage what are their responsi-
– Methods of record keeping – What accounting system
will you use? Who will do your record keeping? Do
you have a plan to help you use your records in
analyzing your business?
– Insurance – What kinds of insurance will you need?
What will these cost and who will you use for a carrier?
– Security – Address security in terms of inventory
control and theft of information.
Covers the details of your marketing plan. Include
information about the total market with emphasis on
your target market. Identify your customers and tell
about the means to make your product or service avail-
able to them.
– Target market – Identify characteristics of your
customers. Tell how you arrived at your results. Back
up information with demographics questionnaires and
surveys. Project size of your market.
– Competition – Evaluate indirect and direct competition.
Show how you can compete. Evaluate competition in terms
of location market and business history.
– Methods of distribution – Tell about the manner in
which products and services will be made available to
the customer. Back up decisions with statistical
reports rate sheets etc.
– Advertising – How will your advertising be tailored to
your target market? Include rate sheets promotional
material and time lines for your advertising campaign.
– Pricing – Pricing will be determined as a result of
market research and costing your product or service.
Tell how you arrived at your pricing structure and
back it up with materials from your research.
– Product design – Answer key questions regarding product
design and packaging. Include graphics and proprietary
– Timing of market entry – Tell when you plan to enter
the market and how you arrived at your decision.
– Location – If your choice of location is related to
target market cover it in this section of your business
plan. (See location in the business section of this
– Industry trends – Give current trends project how the
market may change and what you plan to do to keep up.
VI. Financial documents
These are the records used to show past, current and
projected finances. The following are the major documents
you will want to include in your business plan. The work
is easier if these are done in the order presented.
– Summary of financial needs – This is an outline indicating
why you are applying for a loan and how much you need.
– Sources and uses of funds statement – It will be necessary
for you to tell how you intend to disperse the loan funds.
Back up your statement with supporting data.
– Cash flow statement (budget) – This document projects what
your business plan means in terms of dollars. It shows cash
inflow and outflow over a period of time and is used for
internal planning. Cash flow statements show both how much
and when cash must flow in and out of your business.
– Three-year income projection – A pro forma income statement
showing your projections for your company for the next
three years. Use the pro forma cash flow statement for the
first year’s figures and project the next according to
economic and industry trends.
– Break-even analysis – The break-even point is when a company’s
expenses exactly match the sales or service volume. It can be
expressed in total dollars or revenue exactly offset by total
expenses or total units of production (cost of which exactly
equals the income derived by their sales). This analysis can
be done either mathematically or graphically.
Note: The following are actual performance statements reflecting
the activity of your business in the past. If you are a new
business owner your financial section will end here and you will
add a personal financial history. If you are an established
business you will include the actual performance statements that
– Balance sheet – Shows the condition of the business as of a
fixed date. It is a picture of your firm’s financial condition
at a particular moment and will show you whether your
financial position is strong or weak. It is usually done at
the close of an accounting period and contains assets liabil-
ities and net worth.
– Income (profit and loss) statement – Shows your business
financial activity over a period of time (monthly annually).
It is a moving picture showing what has happened in your busi-
ness and is an excellent tool for assessing your business. Your
ledger is closed and balanced and the revenue and expense totals
transferred to this statement.
– Business financial history – This is a summary of financial
information about your company from its start to the present.
The business financial history and loan application are usually
the same. If you have completed the rest of the financial section
you should be able to transfer all the needed information to this
VII. Supporting documents
These are the records that back up the statements and decisions
made in the three main parts of your business plan. Those most
commonly included are as follows:
– Personal resumes – Should be limited to one page and include
work history educational background professional affiliations
and honors and special skills.
– Personal financial statement – A statement of personal assets
and liabilities. For a new business owner this will be part
of your financial section.
– Credit reports – Business and personal from suppliers or
wholesalers credit bureaus and banks.
– Copies of leases – All agreements currently in force between
your company and a leasing agency.
– Letters of reference – Letters recommending you as being a
reputable and reliable businessperson worthy of being
considered a good risk. (Include both business and personal
– Contracts – Include all business contracts both completed
and currently in force.
– Legal documents – All legal papers pertaining to your legal
structure proprietary rights insurance titles etc.
– Miscellaneous documents – All other documents that have been
referred to but are not included in the main body of the
plan (e.g. location plans demographics advertising plan etc.).
Putting Your Plan Together
When you are finished: Your business plan should look
professional, but the lender needs to know that it was done by
you. A business plan will be the best indicator he or she has to
judge your potential for success. It should be no more than 30 to
40 pages long. Include only the supporting documents that will be
of immediate interest to your potential lender. Keep the others
in your own copy where they will be available on short notice.
Have copies of your plan bound at your local print shop, or with
a blue, black or brown cover purchased from the stationery store.
Make copies for yourself and each lender you wish to approach. Do
not give out too many copies at once, and keep track of each
copy. If your loan is refused, be sure to retrieve your business
plan. For a more detailed explanation of each section of the
business plan outline, see SBA’s publication, How to Write a
Business Plan, which includes step-by-step directions and sample
sections of actual business plans. Also available from the SBA is
a VHS videotape and workbook, The Business Plan: Your Roadmap for
APPENDIX B: INFORMATION RESOURCES
U.S. Small Business Administration (SBA)
The SBA offers an extensive selection of information on most
business management topics, from how to start a business to
exporting your products.
This information is listed in “The Small Business Directory”. For
a free copy contact your nearest SBA office.
SBA has offices throughout the country. Consult the U.S.
Government section in your telephone directory for the office
nearest you. SBA offers a number of programs and services,
including training and educational programs, counseling services,
financial programs and contract assistance. Ask about
– Service Corps of Retired Executives (SCORE), a national
organization sponsored by SBA of over 13,000 volunteer business
executives who provide free counseling, workshops and seminars
to prospective and existing small business people.
– Small Business Development Centers (SBDCs), sponsored by the SBA
in partnership with state and local governments, the educational
community and the private sector. They provide assistance,
counseling and training to prospective and existing business
– Small Business Institutes (SBIs), organized through SBA on more
than 500 college campuses nationwide. The institutes provide
counseling by students and faculty to small business clients.
For more information about SBA business development programs and
services call the SBA Small Business Answer Desk at 1-800-8-ASK-SBA
Other U.S. Government Resources
Many publications on business management and other related topics
are available from the Government Printing Office (GPO). GPO
bookstores are located in 24 major cities and are listed in the
Yellow Pages under the “bookstore” heading. You can request a
“Subject Bibliography” by writing to Government Printing Office,
Superintendent of Documents, Washington, DC 20402-9328.
Many federal agencies offer publications of interest to small
businesses. There is a nominal fee for some, but most are free.
Below is a selected list of government agencies that provide
publications and other services targeted to small businesses. To
get their publications, contact the regional offices listed in
the telephone directory or write to the addresses below:
– Consumer Information Center (CIC), P.O. Box 100 Pueblo, CO 81002
The CIC offers a consumer information catalog of federal
– Consumer Product Safety Commission (CPSC)
Washington, DC 20207
The CPSC offers guidelines for product safety requirements.
– U.S. Department of Agriculture (USDA)
12th Street and Independence Avenue, SW
Washington, DC 20250
The USDA offers publications on selling to the USDA.
Publications and programs on entrepreneurship are also available
through county extension offices nationwide.
– U.S. Department of Commerce (DOC)
Office of Business Liaison
14th Street and Constitution Avenue, NW
Washington, DC 20230
DOC’s Business Assistance Center provides listings of
business opportunities available in the federal government. This
service also will refer businesses to different programs and
services in the DOC and other federal agencies.
– U.S. Department of Health and Human Services (HHS)
Public Health Service
Alcohol, Drug Abuse and Mental Health Administration
5600 Fishers Lane
Rockville, MD 20857
Drug Free Workplace Helpline: 1-800-843-4971. Provides
information on Employee Assistance Programs.
National Institute for Drug Abuse Hotline:
1-800-662-4357. Provides information on preventing substance
abuse in the workplace.
The National Clearinghouse for Alcohol and Drug Information:
1-800-729-6686 toll-free. Provides pamphlets and resource
materials on substance abuse.
– U.S. Department of Labor (DOL)
Employment Standards Administration
200 Constitution Avenue, NW
Washington, DC 20210
The DOL offers publications on compliance with labor laws.
– U.S. Department of Treasury
Internal Revenue Service (IRS)
P.O. Box 25866
Richmond, VA 23260
The IRS offers information on tax requirements for small
– U.S. Environmental Protection Agency (EPA)
Small Business Ombudsman
401 M Street, SW (A-149C)
Washington, DC 20460
1-800-368-5888 except DC and VA
703-557-1938 in DC and VA
The EPA offers more than 100 publications designed to help small
businesses understand how they can comply with EPA regulations.
– U.S. Food and Drug Administration (FDA)
FDA Center for Food Safety and Applied Nutrition
200 Charles Street, SW
Washington, DC 20402
The FDA offers information on packaging and labeling
requirements for food and food-related products.
For More Information
A librarian can help you locate the specific information you need
in reference books. Most libraries have a variety of directories,
indexes and encyclopedias that cover many business topics. They
also have other resources, such as
– Trade association information
Ask the librarian to show you a directory of trade associations.
Associations provide a valuable network of resources to their
members through publications and services such as newsletters,
conferences and seminars.
Many guidebooks, textbooks and manuals on small business are
published annually. To find the names of books not in your local
library check “Books In Print”, a directory of books currently
available from publishers.
– Magazine and newspaper articles
Business and professional magazines provide information that is
more current than that found in books and textbooks. There are
a number of indexes to help you find specific articles in
In addition to books and magazines, many libraries offer free
workshops, lend skill-building tapes and have catalogues and
brochures describing continuing education opportunities.
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