If you are considering starting a new business, there are a number of factors to figure in to the equation.  Besides choosing a location, applying for proper permits, and obtaining required licensing, prospective new business owners need to analyze both short-term and long-term goals to determine what financial options will be best for the business.  Starting a new business is no small task and will likely come with a large price tag.  The majority of start-up businesses will require funding that the owner simply does not have on hand.

1. Business Bank Accounts

One of the first things you should do as a prospective business owner is open up a business banking account.  Many first time small business owners overlook this step in the beginning, thinking that it will be something they will do once the business is established.  However, it is vital that a business, no matter how small, have a separate banking account.

Keeping your business and personal records separate will be much easier if your funds are kept separate as well.  In addition, banks and other financial institutions do not tend to look fondly upon businesses that do not have a separate banking account.  Chances are that you are going to need financial backing for your new business.  It is a good idea then to present your business as professionally as possible.  A business banking account will help to demonstrate to a financial institution that you are a serious business owner and that you intend to run your new business in a professional manner.

2. Financing

A variety of options exist when it comes to financing a new business.  However, unless you are independently wealthy or have suddenly come into a large windfall, it is likely that you will need to apply for a loan or other form of financial assistance.  Primarily, there are two options available to small business owners.  You can either request a small business loan at a bank or apply for a merchant cash advance with a financial lender.

3. Applying for a Business Loan

Applying for a small business loan at a bank may seem to be the most likely solution and best route for many.  Keep in mind however, that banks place tight restrictions upon business loans.  If you intend to apply for a small business loan at a bank, you should first contact the financial institution to learn what requirements will need to be met.  Before applying, gather all necessary information so that you will be able to present yourself in a professional manner to the loan officer.  One of the primary things you should be prepared to present the loan officer with is a solid business plan.  Financial institutions look fondly upon new business owners who are able to present a well laid out business plan with an accurate representation of the new business and a solid plan for repaying the loan.  Many new business owners find it beneficial to consult a business style guide when developing a business plan.

Other documents to have available when applying for a small business loan include profit reports, proof of insurance, and credit reports.  You should also be able to provide collateral to be put up in case you are unable to repay the loan when it is due.  Many new business owners may find it difficult to meet the qualifications set forth by their financial institution.  A brand new business is not likely to have an established credit report or substantial profit reports to present to the loan officer.  Unless you are able to present an air-tight business plan with evidence of strong support and accurate collateral, you may not qualify for a traditional business loan at a bank.

4. Merchant Cash Advance

New business owners who do not qualify for a small business loan at a bank may decide to apply for a merchant cash advance instead.  This type of advance uses credit card factoring.  In exchange for a percentage of future credit card sales, the lender agrees to deposit a predetermined amount of cash into the business account.  Deductions from the business owner’s financial account will then be automatically taken out according to the percentages agreed upon until the amount of payment has been met.

Merchant cash advances are generally easier to qualify for since no credit checks are run and a financial history is not required.  In order to qualify for a merchant cash advance, businesses will be required to prove that their business accepts credit card sales and be able to present the lender with a copy of recent credit and debit card sales transactions.  In addition, no collateral is required and the transaction is considered a sale rather than a loan, so the credit history of the business will not be affected.

When applying for a merchant cash advance, it is important to note all terms and conditions of the transaction.  These types of advances are considered to be a high risk.  As a result, fees and interest rates are generally much higher than traditional small business loans.

Seek Expert Help with Padgett Business Services

While these tips may help new businesses save significant sums in their setup costs, it’s also important to consider ongoing professional accounting services to guide you through taxation and other financial issues for your business.  We would be happy to meet with you to review the potential tax savings that exist for your situation.  Feel free to contact us if you’d like further assistance.

 

 

 

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