Financial Health in the Startup Funding Stages
Business financials… where to start? First, I’ll say the financial health in the startup funding stages of your company starts well before going into business. Why do I say this? Well, businesses don’t typically start with credit. Like your personal credit, it’s something a business has to earn. As such, most lenders require business owners to offer a personal guarantee on a business loan. That is, the business owner personally backs the loan and is personally responsible if the business defaults on the loan. Think of it as being a cosigner for a business loan. This is why it’s important to main good personal credit health if you’re looking to obtain a startup loan for your business.
Even if your credit isn’t the greatest, sometimes there are additional financial opportunities. Some states and locality are so supportive of small business they set aside programs to help fund some of the more riskier loans. In addition, where banks often will put a limit on the amount they’ll loan, often capping around 75% of a business project, gap lending programs may be available to help you bridge the difference between the money you have available for the project and the amount the bank will lend you. With that in mind, I tell my clients to at least come to the table with 10% of the total amount of their project, and I’ll do my best to help them find the rest. Keep in mind, programs aren’t necessarily available in every community, but it doesn’t hurt to research.
Your business’s financial health continues to be important after you’re in business. If you ever plan to expand, you may need to return to lenders. Keep in mind though, not all expansions are health for your business. Therefore, it’s important to analyze your business financials and assess the implications of expanding. More than a few clients have come into my office to seek lending to pay bills or make payroll. They wonder how in the world could their sales be at a record high, but they have a negative cashflow.
Though I shouldn’t have to tell you, but I’ll mention it anyway, because some people get a bit cozy and “forget.” Keep clean books and up to date, as you never know when the IRS will swoop in and bless you with one of their infamous audits.
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