Today’s young entrepreneurs are confronted with a vast array of potentially lucrative business opportunities. In addition to choosing a traditional career path with an existing company, young workers may also opt to become business owners. Changes in technology, along with world-wide challenges and opportunities, have created unlimited possibilities! The cellular smartphone is one example of available opportunities. Smartphone usage has spawned countless new applications and clever revisions to familiar applications.
Certainly there is no more important decision for the young entrepreneur than the choice of financial resources to be utilized in the business. There are numerous sources of potential funding such as:
Friends and family
Equipment, inventory and sales order financing
For purposes of this article, traditional business loans from banks will be discussed.
Approaching a bank for business financing can have several advantages.
Bankers are easier to approach for funding, since banks usually have a set procedure for reviewing loan applications. The negotiation phase is shorter; banks normally do not have the latitude to consider “exotic” deals from new entrepreneurs. The advantage is a quicker yes/no answer on the proposal.
Repayment terms are straightforward and easy to understand. Banks normally require a monthly payment (some loans may require principal and interest payments, and some repayment schedules require monthly interest-only payments). Banks do not demand an ownership in the company, nor do banks require participation in the profit or loss of the enterprise.
A bank has a variety of loans to offer. Short-term loans can be obtained for rent, supplies, inventory and invoice financing, and payroll expenses. Long-term loans are used for real estate, commercial buildings, machinery, and vehicles. Loan amounts can be disbursed to the business owner as lump-sum amounts at the beginning of the loan term, or partial disbursements as part of a line-of-credit loan arrangement. With rare exception some collateral will be necessary.
It is extremely important that the young entrepreneur has a viable plan, and understands the obligations associated with doing business with a bank. Timely payback according to the terms of the loan is extremely important. Finally, the business person must be convinced that the bank is financially sound, and adheres to the highest standards of conduct and business ethics