In all cases, the prospect of a profitable investment as shown by a sound business plan is a key step to seeking financing.

Financing for your business may be obtained from private investors, lenders, and other financial institutions. In Colorado, most new businesses are initially financed by personal investments from the owner, family, friends and personal business contacts. While it is not impossible, it is often more difficult for new businesses to obtain outside financing. The vast majority of outside financing for small businesses comes from commercial banks, savings and loan institutions. Other business owners seek financing from government sources of financing.

Commercial finance companies, leasing companies, insurance companies, and private or public stock offerings are other financing vehicles that may suit a particular small company’s needs.

You should also ask yourself: For what do I need financing? How much do I need? How much may I borrow? For which programs does my business qualify? What information do I need to provide the lender/investor? Do I have to pay interest? If so, will the interest rate vary over the term or will it be a fixed rate? Will I be required to “share” ownership in my business? How long will it take to acquire the money? What are the repayment terms?

No matter which type of loan or financing option you choose, the lender will judge your ability to repay the loan and evaluate your collateral. He/she will ask for information to determine how you manage your business, how likely you are to default on the loan, the size of the loan compared to how much you have (your debt to tangible net worth ratio) and your company’s ability to liquidate its current assets. In all cases, the potential for a profitable investment as reflected in a sound business plan is a key step to obtaining the financing you need. Assistance in how to prepare a business plan is available through a number of government offices and private management and financial consultants.

Government Sources of Financing

To find out how to restructure your debt load, view the Corporate Turnaround Business Toolbox.

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