How to get business financing and help:
Having sufficient financing to see a new business through the crucial first year is often the difference between whether a new survives or folds. To make sure that your new business will survive it is essential that you prepare a thorough Business Plan. Even if you are not applying for loans or grants, the Business Plan is the only way you can be sure that you know and will be able to meet your financing needs while your business builds strength.
Once you know how much you will need to start and run your business until it is self-supporting, look at where the necessary funds will come from. Most new small businesses are financed through the owner's savings as well as loans or investment from family and friends. There are, however, several government programs available to help small-business men and women start a business.
- Personal Savings
- Personal Credit Lines
- Home Equity Loans
- Asset Loans
- Loans from family and friends
- Investments from family and friends
- Bank Business Loans
- Government Loans and Grants
Personal sources of financing:
- Savings (bank accounts, savings bonds, stocks, annuity payments, etc.)
- Personal credit lines. These are usually linked to credit card accounts and can have very low interest for a period of time but there may be an immediate interest payment (typically 4% to write the check). There is usually no collateral for these types of loans. These balances will, however, reduce the amount of credit available on your related credit card and will be reported as outstanding credit on your credit report.
- Home Equity Loans. If you own a house, condo or co-op you may be able to either refinance your mortgage or get an "equity line of credit" . Refinancing your home has the advantage of relatively low interest rates over a long period of time. A home equity credit line is essentially a checkbook where you write checks against the credit line as you need the funds. You don't start paying for the use of this credit until you need it. As both the financial markets and your personal finances, especially the amount of your outstanding debt, changes the bank can (and often will) reduce or cancel home equity credit lines when you need the money most.
- Asset Loans. Certain assets such as whole life insurance policies and retirement accounts may contain loan provisions which are easy to obtain and have very favorable terms. Many retirement (401k) plans allow you to borrow up to $50,000.00 at a low interest rate. As you pay back the loan, most of the interest goes back into your account. To see about these loans contact your Retirement Account administrator or Insurance Representative for life insurance loans
Loans/Investments from family and friends:No business is worth destroying your relationships with your family and friends. When you consider asking a family member or friend for a loan or investment in your new business, keep their needs and feeling in mind. Don't be offended if they will not invest in your business. There can be lots of reasons, many of which they may not want to tell you. They may be struggling, need their money for something in their lives or even just be afraid of losing their money. It's natural for people to be afraid that a new business will not succeed. It's not a judgment on you or your business plan, it's just the way that most people think. If they are willing to invest, make sure that you do the things that will make them feel protected.
- Loans. With a "loan," someone gives you money and you agree to pay them back with interest. If you do not agree to pay interest, the amount of interest which would normally be charged can be considered a gift and subject to gift tax. For all loans you should issue a "Note" detailing your agreement. This protects the person loaning you the money and avoids misunderstandings. The following are sample notes you can use or you can customize one to meet your specific agreement.
- Amortizing Note: You agree to pay the principal and interest in equal monthly/quarterly/yearly amounts until the loan is paid off.
- Demand Note: You agree to pay the principal and interest when the lender demands it.
- Balloon Note: You agree to pay the interest in equal monthly/quarterly/yearly amounts until a certain date and then the entire loan is due.
- Investment. Family and friends can "invest" in your business by taking an ownership interest. You can not offer shares in your business to the public without extensive and costly business filings with the NYS Department of State and the Securities Exchange Commission. But for family and friends you can allow them to invest by purchasing a share of your business. How this is done will depend on the type of business structure you are using:
- Sole Proprietor: You would have to change to another form of structure such as a partnership or corporation since there can be only one owner in a sole proprietorshio.
- Partnership: You can always add partners to a partnership if allowed in your partnership agreement. Partners do not have to have equal shares BUT if it is a regular partnership, all partners will be responsible for the debts and losses of the business. To add a partner or create a partnership, you should prepare or amend your Partnership Agreement.
- Limited Liability Company: You can add members or managers as provided in your LLC agreement. Limited members are not personally responsible for debts or losses beyond their investment, do not have any say in the operation of the business and cannot obligate the LLC.
- Corporation: You can add investors by issuing share certificates. Most small businesses will be formed with 200 no-par value shares. This saves extra fees. You do not have to issue all 200 shares. If you are the only owner, for example, you may wish to issue yourself 100 shares. If a family member wanted to invest, you could adjust the shares to reflect his/her interest. For example, you could issue 90 shares to yourself and 10 shares to your mother to give her a 10% interest. Issuing shares usually entitles that person to vote on all corporate matters such as electing the board of directors and officers (president, treasurer, etc).
Bank Business Loans:Unless you have a well established relationship with a bank and have considerable collateral, you are not likely to get a bank to give you a "business loan" for a new business other than an SBA loan. Bankers are fond of saying that they'll lend you as much money as you have. The do not like to take risks.
If you think that you have a banker who is willing to work with you, make sure that you have a very convincing Business Plan before approaching the bank. Your chances will still be much better if you apply for a SBA loan.
Government Loans and Grants:
- Small Business Administration (SBA) Loans and Grants: The SBA does not give loans. It guarantees loans. This is why most banks and other lenders will not give you a loan unless it is guaranteed by the SBA. There are several different financing programs available through the SBA which are administered by local banks and community organizations.
- To find out what SBA programs you might be able to apply for, use the SBA's online questionnaire. Check each box which applies to your situation (for example, minority, child care industry, interested in government contracts) and select New York. It will give you a list of the programs that you might be eligible for.
- One of the most popular programs is the Micro Loan Program. A micro loan can provide up to $50,000.00 (average is $13,000.00) to be used for working capital or to buy inventory, supplies, fixtures or equipment for yout business. As part of the micro loan program, the lender will provide you with technical support.
- The SBA Loan Application Checklist will provide you with an idea of all the documents you will need to apply for an SBA loan. You will also need a detailed Business Plan.
- You can get information directly from the SBA by going to their office or calling:
SBA New York District Office
26 Federal Plz, Suite 3100, New York, NY 10278
- Other Programs to help you:
- NYC Business Solutions is a great resource for all aspects of starting, buying or running a business in the Bronx. You can request an Account Manager who will help you to find lenders and to package your loan application entirely for FREE.
- The New York Business Development Corporation is a New York State program which will also help you to obtain financing. Simply email the
Loan Officer for the Bronx to start working with them.
- South Bronx Overall Economic Development Corp.:
- Hunts Point Economic Development Corporation, also known as HPEDC.
- Women's Housing & Economic Development Co.:
- Bronx Council-Economic Development: 807 Lydig Ave, Sutie 200, Bronx, NY 10462 (718) 829-2020
- Bronx Overall Economic Development: 851 Grand Concourse, Bronx, NY 10451 (718) 590-3948
- Urban Economic Development Corp.693 E 236th St, Bronx, NY 10466 (718) 655-5100.