How to Fund Your Small Business

Image: woman learning about mistakes in borrowing - Coast Women in Business

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Sources of Business Financing

  • Personal savings
  • Friends and family
  • Crowd funding
  • Investment capital
  • Credit cards
  • Bank loans
  • Community (nonbank) lenders

Uses of a Business Loan

  • Equipment
  • Inventory
  • Supplies
  • Materials
  • Working capital
  • Start-up expenses

Establishing the Cost of Capital

  • What’s the term of the loan – how many years?
  • What’s the interest rate?
    • Is it fixed or variable?
    • Is it simple or compound?
    • Is it APR or other price?
  • What additional fees are charged?
    • Closing?
    • Application?
    • Insurance?

Why Get a Term Loan?

Amount Borrowed$10,000$10,000$10,000
Interest Rate10% simple APR15.49-21.49% variable compound (calc @ 19%)1.5-10% monthly fee
(calc @ 6.%)
Closing Costs$250-$650$0
Monthly Payment$323/month~$300 (3% of balance)/month$1,433 then $958/month
Total Interest Paid$1,616$10,035$4,350
Time Frame to Pay Off3 years14.5 years1 year
Total Cost$1,866$9,385$4,350

It saves you money!

The Five Cs of Credit

The 5 Cs of credit are the basis many banks and lenders use to determine whether they can make a loan.

  • Character – Does the applicant have a history of repayment? Does their past history show they can be trusted to repay?
  • Capital – What are the owners investing into the business to show that they are committed to the project?
  • Collateral – Does the borrower have something they can use to secure the loan in the event that the business fails?
  • Capacity – Will the business be able to replay the debt based on the business’s cash flow and other outstanding debt?
  • Conditions – Are there outside influencers or economic conditions that will impact whether the business can succeed?

For more information about financing in Mendocino and Lake Counties, contact EDFC at 707/237-5705 or

Capacity: Can You Pay It Back?

  • For every $1 you owe, you need at least $1.25 of net income
  • For $10,000 @ 10% APR for 3 years:

(Monthly PMT = $323 / Monthly income = X) = $1.00 / $1.25

Business NET income must be $404/month or more

Getting Ready to Apply

Start-up checklist:

  • Business plan
  • Financial projections
  • Equity/Owner investment
  • Collateral
  • Tax Returns
  • Bank statements
  • List of purchases/uses
  • Cost estimates
  • Licenses/planning/zoning info.

Existing business checklist:

  • 3 years of financial statements
  • Financial projections
  • Equity/Owner investment
  • Collateral
  • Tax returns
  • Bank statements
  • List of purchases/uses
  • Cost estimates
  • Licenses/planning/zoning info.

Developing a Relationship

  • Contact the lending institution BEFORE you fill out the loan application
  • Be 100% honest with your lender
  • Ask questions and make sure you understand the answers
  • Be prepared to do the work

Help Getting Started

About the Author

Image: Heather Gurewitz - member, Coast Women in Business

Heather Gurewitz is Executive Director of the Economic Development and Financing Corporation (EDFC), a nonprofit business lender serving Mendocino and Lake Counties.

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