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Beginning today and every Wednesday afternoon here on the Small Business channel at BlackEnterprise.com, you’ll find Get Money, a weekly series of posts providing information, resources and expert advice specifically aimed at small business owners looking for sources of capital and guidance on how to secure it. We start with some of the basics most small business owners and aspiring entrepreneurs need to focus on as they begin their quest for capital:
Yes, you do need a business plan. Your business plan should be in place before you start your financing search. It should explain in detail your business model–it should spell out exactly how your business produces a profit–and also clearly indicate how much capital you need and how it will be used.
For more guidance on writing business plans, check out our weekly Biz Plan Insider posts.
Be clear about how much money you need and how it will be used. “Financing sources are not interested in giving you money to get your business up and running, says small business expert Andrew Morrison, CEO of Small Business Camp. “They’re not looking to pay for your office equipment and provide you with a salary. They are looking to invest in ideas you have that will produce a profit, not just keep your operation going.”
Any lenders or investors will have one question on their minds: If they give you the financing, how will you pay it back–plus interest or a major return on their investment? Your business plan must be Exhibit A in presenting proof that you’ve done the planning, preparation and due diligence necessary to provide a credible answer to that question.
Establish business credit. A common mistake new entrepreneurs make when seeking small business capital is failing to establish business credit separate and apart from their personal credit. (Although it can’t hurt to have a great personal credit history.) Most lenders will not finance your business without a business credit history. Start by establishing bank accounts and securing business credit cards to be used exclusively for your business, before moving on to securing a small bank loan and establishing lines of credit with your vendors. Of course, to maintain a favorable business credit history, you must make any payments due on loans, business credit cards or lines of credit on time, every time–so don’t take on more than you can handle. Be sure that all of these sources of business credit report your payment history to the Small Business Financial Exchange, a member-owned database managed by the Equifax credit reporting agency, or similar business credit information service.
Follow the money. Think about where venture capitalists, small business lenders and other sources of financing are already putting their money. Morrison recommends you do what you can to credibly position your business model to take advantage of those trends. “Look at the ideas that people are already investing in, such as social media,” says Morrison, who follows web sites such as VentureBeat.com to stay on top of the hottest sectors. “Don’t be afraid to tie your concept to what people are already investing in, or to build on someone else’s idea for a new or different market target.”
Follow Small Business Camp CEO Andrew Morrison on Twitter.