A primary inhibitor of business start-up is that few people have the financial cushion to give up a job for the uncertain income of a start-up venture. In a recent survey, about 30% of new business founders identified inadequate funding as their biggest hurdle, and a similar amount said lenders were too conservative. About 15% reported being unable to find investors, and a similar amount claimed a lack of collateral.
The prospective new business owner approaching a lending institution should keep in mind the "five c's of credit:" character, cash flow, capital, collateral, and (economic) conditions. Character consists of the borrower's integrity, experience, and ability; particularly close attention is paid to a borrower's credit history, which is a matter of record. Should you decide to try to fund a startup through a commercial lender, the remaining criteria are addressed in the loan request.
The loan request should include a credit application, financial information such as tax returns and personal financial statements, and a brief business plan emphasizing projected financial performance of the new venture. The plan should demonstrate how the business will generate sufficient cash flow to repay the loan, specify collateral, and show the borrower's personal investment.
In addition to servicing the loan, cash flow should also cover operating expenses, and provide for some re-investment for the increasing financial demands of a start-up venture. As collateral, banks will often lend up to 80% of the market value of real estate, and up to 50% on business assets such as equipment, inventory, and current accounts receivable. Lenders and investors often require that the bulk of start-up monies be provided by the business owner. This assures these stakeholders that the owner is committed, and has confidence in the financial projections.
When the entrepreneur can not meet the requirements of commercial lenders, and does not have a favorable arrangement with partners or other investors, the remaining options are difficult and expensive. These options include public-sector guarantees, finance companies, and the venture capital market.
Even where the start-up investment consists largely of other people's money, the amount of financial risk for the entrepreneur is beyond what most can responsibly handle. For many with the financial means, the stress of bearing complete responsibility for the company's direction and performance is the discouraging factor.
Once the venture is off the ground, a new set of challenges faces the entrepreneur. A recent survey showed their major concerns, named by more than half of respondents, were: "getting new business/clients;" "managing my time;" and, "promoting my business." Another interesting question was what they missed about the corporate world. The top three responses were "company-paid health insurance," "a regular paycheck," and "retirement plans."
Various estimates have been made for the failure rate of business start-ups, based on various concepts of failure and of appropriate survey methods. The consensus seems to be that less than half of new businesses survive the start-up "trauma."
Perhaps, a major reason for what seems to be a high failure rate is that it is so easy to start a business. There is no institutionalized check of qualifications in the U.S.; on the contrary, our tax dollars fund the Small Business Administration and other agencies and programs that encourage business formation.
Another survey showed that over 80% of entrepreneurs would take a pay cut if that is what it took to keep the business going. Just over a third would sell the business, even if a good price were offered.
John B. Vinturella, Ph.D. has almost 40 years experience as a management and strategic consultant, entrepreneur, author, and college professor. For 20 of those years, Dr. Vinturella was owner/president of a distribution company that he founded. He is a principal in business opportunity sites jbv.com and muddledconcept.com, and maintains business and political blogs.
Saving time means pacing yourself, being organized, and always prioritizing... Read More
Q: When it comes to succeeding in business, which do... Read More
So you had that fantastic business idea, the one that's... Read More
Does it seem like everyone and everything is vying for... Read More
Why, exactly, do you want to go into business for... Read More
Select the best response to the statement below:As a solo... Read More
Leadership is based on two words, "pressure and support"and that... Read More
Dwight Payne and Gary Heap reside in Santa Barbara, CA,... Read More
The term "Infopreneur" is a relatively new industry buzz word... Read More
Romans had a phrase for this- First among Equals.Online marketing... Read More
Living in the twilight zone has its advantages. In the... Read More
I'm sure that you've heard about how many start up... Read More
Let me ask you a question? Imagine I would offer... Read More
Forging partnerships to improve market penetration has become commonplace, particularly... Read More
As a service provider, the most important type of "boundary"... Read More
If your company is like the one I work for,... Read More
Buying into a franchise is a great way to be... Read More
I'm convinced that asking the right questions is one of... Read More
When franchise companies are moving fast in the market place... Read More
Successful entrepreneurs have many traits in common. Here are ten... Read More
Making the financial transition from paid employment to earning a... Read More
1) No Umbrella Business Plan or Strategy -- Without a... Read More
The basic rule is simple: "Find a market need and... Read More
They're really are powerful million dollar opportunites everywhere.Ok, let me... Read More
Discover the pitfalls of owning your own business BEFORE... [you... Read More
Living in the twilight zone has its advantages. In the... Read More
DON'T talk to me about education for entrepreneurs. They're pouring... Read More
Widget sales are booming ? the competition is scrambling, demand... Read More
Some of us are born into families with "it", some... Read More
About 6 years ago I started to notice that certain... Read More
Entrepreneurship is generally characterized by some type of innovation, a... Read More
Yesterday was a beautiful, sunny day in New York and... Read More
A primary inhibitor of business start-up is that few people... Read More
Entrepreneurs are a special breed of high achievers. They create... Read More
When franchise companies are moving fast in the market place... Read More
The most important function of a business plan is to... Read More
Would you like to find the key that unlocks the... Read More
When I got into business I wanted to build a... Read More
More and more corporate workers are leaving their jobs to... Read More
You're a smart, hardworking entrepreneur, and you're moving fast. You... Read More
If you believe that every little bit helps then keep... Read More
Define for yourself what an Entrepreneur is:What makes you think... Read More
There are certain traits and skills that many successful online... Read More
Why do people start small businesses? The most frequently cited... Read More
Q: I want to start my own business. I have... Read More
Sally and Jim have launched their automotive franchise business and... Read More
Too many people are trying to start their home businesses... Read More
Cash is one of the most important resources to a... Read More
Most entrepreneurs constantly come up with new ideas. Whether they... Read More
What I've discovered from most of my small business clients... Read More
The latest series in "The Apprentice" features 2 distinct group... Read More
Have you ever heard of an ultramarathon? A standard marathon... Read More
More and more students, both in undergraduate and graduate institutions,... Read More
It is a common known fact that it is far... Read More
Richard Branson, billionaire founder of Virgin Records and Virgin Atlantic... Read More
The world sure has changed in the last two-decades hasn't... Read More
Any time you make changes in your life you are... Read More
Hello Creative Entrepreneurs!In the second course on Creativity & Entrepreneurship... Read More
How often have you either referred to or considered the... Read More
I would like to give some advice to all the... Read More
Business plans continue to be an essential element of the... Read More
Successful entrepreneurs have many traits in common. Here are ten... Read More
Every business has to start somewhere. What truly makes this... Read More
What is it that sets a successful businessperson apart from... Read More
The definition of a startup means you have very few... Read More
Are you ever frustrated or hesitant when you talk to... Read More
Entrepreneur |