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Small Business Financing Essentials

Simple Alliance, Kenya Limited


Looking for Outside Business Financing

When seeking business finance for your start-up or existing businesses, you would do well to consider the following factors:

  • Using personal savings
  • Calculate your total monetary requirements
  • Select suitable financing options
  • Approach potential financiers
  • Maintaining good after financing relationships

Make Personal Savings

Usually, your own savings are your primary business financing options.

Compute your Total Cash Requirements

You can refer to your business plan so as to make accurate computations. Some important expense items include: 

  • Equipment
  • Salaries
  • Rent
  • Supplies

Avoid buying items you’d rather lease at cheaper prices.  Determine the assets that will act as collateral for loans.  Some collateral items include:

  • Equity within your home
  • Inventory
  • Accounts receivable
  • Business equipment

Choose Suitable Funding Avenues

Major financing methods include:

  • Loan
  • Equity  

Loan

After securing business loans, you pay interest to lenders. With loans, you will be issued with terms based on factors like:

  • Your business size
  • Your business’ age

Equity

Investors into equity secure ownership interests in the recipient firms. You could invite venture capitalists to participate. You could also sale stock to a controlled number of investors. Relatives and friends could be partners.  For an Initial Public Offering (IPO), you would want until your business established an earnings history.  Equity is tightly controlled by the government. Your lawyer’s input could thus be helpful.

Meeting Prospective Financiers

You need to have some important business documents with you. These include: 

  • Business financial statements
  • Business tax returns
  • Business Plan, budget or projection
  • Personal financial statements

When before your potential funders, you also need to describe your business. Give a summary of your business’ previous and projected financial performance.  This account will require your close familiarity with your business plan.

Give your potential financiers an agreeable debt repayment formula. Some repayments plans you could select include: 

  • As a loan
  • As a line of credit

Ensuring Cordial Relationships with Lenders

After acquiring your loan, you need to maintain good working ties with your lenders.  These relationships ensure that you get loans in future should you need them.  Some measures for ensuring proper ties with lenders include:

  • Honouring the loan agreement by repaying in time
  • Cooperating with lenders in case they need any document from you
  • Being proactive by calling lenders to en sure all is okay   

Test Your Knowledge

SESSION 8 Quiz: How to Finance Your Business

Top of Form

  1. The best source of money to start my business is:
    1. A bank
    2. My savings
    3. Sell stock to my friends or the public

Bottom of Form

Top of Form

  1. You want to start a business that will require lots of money. The venture could fail if conditions change. Your banker will loan you the money but wants your personal guarantee and the equity in your house as collateral. You should:
    1. Start on a very small basis without bank debt.
    2. The very nature of an entrepreneur is to be willing to risk personal and family money: go for it.

Bottom of Form

Top of Form

  1. Your business plan is going to be an important tool in your financing program. You will use it with bankers, suppliers, landlords and even customers. Why is a meticulously prepared business plan so important in accomplishing your financing objectives?
    1. To impress them with your ambitious goals
    2. To reassure them of your business conservatism

Bottom of Form

Top of Form

  1. You have an outstanding installment loan with your bank and find that you are unable to make a payment on time. You should:
  1. Make the payment as soon as you can even if it is a late one.
  2. Call your lender in advance and tell him/her you will be late in making the payment.
  3. Call your lender in advance, advise him/her of the problem, and request the terms you need to a stretch out payments, including explaining the sources of repayment.
  1.  
    1. Call the lender and ask that that loan be renegotiated.

Bottom of Form

Top of Form

  1. The WORST advice in dealing with a lender would be:
    1. Never exaggerate and get your lender involved in your growth plans.
    2. Generate high expectations and keep the bad news from him/her.
    3. If you see clouds on the horizon, let your lender know about your fears.

Bottom of Form

Top of Form

  1. 6. You can get added support from lending sources by:
    1. Keep them informed of the good and the bad.
    2. Entertain them lavishly.
    3. Use the "no news is good news" philosophy.

Bottom of Form

Top of Form

  1. What is the LEAST likely way that a supplier could help finance your new businesses?
    1. Extend longer repayment terms.
    2. Guarantee your lease obligation.
    3. Furnish or attractively finance your equipment or signs.
    4. Furnish free advertising and promotions.

Bottom of Form

Top of Form

  1. Personal liability for a business loan can be avoided by organizing the business as a corporation.
    1. True
    2. False

Bottom of Form

Top of Form

  1. Equity financing means:
    1. Money borrowed on a fair ("equity") basis.
    2. Borrowed money that is paid back in installments.
    3. Money that stays in the business as an ownership interest.

Bottom of Form

Top of Form

  1. Most lending sources (SBA, for example) will require submission of a business plan.
    1. True
    2. False

Bottom of Form

 

Financing your small, start-up business is a systematic process. The initial step is accumulating personal savings which are usually the main financing source.  To supplement the personal savings, you could seek external business funding options. Before approaching potential; funders, you need to establish the amount of money you need. Some financing options include bank loans or lines of credit. While convincing your [potential lenders to finance you, you need to be precise in describing your business. You also need to clearly state a repayment plan. After securing the loan, you need to be a good client by honouring the agreement, cooperating with your lender, and being proactive in doing follow-up exercises.

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isaac maigwa, Mombasa, Kenya  |  March 06, 2015
hi how can i get funding for my business?
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Oscar Ngomeli, Nairobi, Kenya  |  October 10, 2014
I would like to find business funding from this institution. Kindly help