Financing Your Business

Prior to approaching any person or organization for financing, a business plan and financials should be in place. This is true even when approaching family and friends for financial assistance. The financial statements generally include actual or projected balance sheets, profit and loss statements, cash flow projections, break-even analysis, sources and uses of funding, tax returns, schedule of existing indebtedness and, if a privately-held company, personal financial statements of principals.

Financing for start-up businesses comes primarily through personal loans. Your local financial institutions (commercial banks, savings and loans) can talk to you about options you may have at your disposal. This may include personal funds, loans from private investors (family, friends, business associates and suppliers), home equity loans, refinancing of real estate, credit card lines of credit (American Express Corporate Card, VISA, MasterCard), cash value on life insurance policies and co-signing possibilities.

The 5 C's of credit
One of the most common questions among small business owners seeking financing: "What will the bank be looking for from me and my business?" While each lending situation is unique, many banks utilize some variation of evaluating the five C's of credit when making credit decisions: character, capacity, capital, conditions and collateral. We'll take a look at each of these ingredients and how they may impact your funding request. Review each category on the link above and see how you stack up.

About SBA Guarantees
The Small Business Administration (SBA) may be an additional source of financing through their Low Documentation Program and 7(a) Bank Loan Guarantee Program. The Low Documentation Program is a quick and easy lending program for small business loans of no more than $150,000. SBA guarantees up to 90% of the loan. The 7(a) program provides loan guarantees to small businesses for working capital or fixed asset purchases.

Revolving Loan Funds
Revolving Loan Funds (RFLs) are available in many areas throughout the state. Each fund has its own policies and guidelines.

Check with Local Economic Development Agency
Your local economic development agency can assist you in determining financial resources in your area.

SBA Community Express Loan Program
http://www.sba.gov/financing/lendinvest/comexpress.html
Community Express is a pilot SBA loan program that offers up to $350,000 in loan proceeds for agricultural and farm businesses.

Farm Service Agency Loans
Stabilizing farm income, helping farmers conserve land and water resources, providing credit to new or disadvantaged farmers and ranchers, and helping farm operations recover from the effects of disaster are the missions of the U.S. Department of Agriculture's Farm Service Agency (FSA).

Financing Basics
http://www.toolkit.cch.com/text/P10_2000.asp
It is important to understand the difference between debt and equity financing. This Website gives a good explanation of how they each work and things you want to consider.

ShoreBank Pacific
http://www.eco-bank.com/
ShoreBank Pacific is a Washington-chartered bank that provides deposits, loans and consulting services to help businesses grow and become more environmentally sustainable.

Rural Loan Fund
http://www.ecda.com/rural.htm
Evergreen Community Development has developed a revolving loan fund for businesses in rural communities between $10,000 and $250,000 for equipment, real estate, leasehold improvements, inventory, working capital, and refinancing.

When you are seeking financing for your business it is to your best advantage to apply for a loan from a conventional bank. If for any reason you are not able to get conventional financing, your next step is to seek either investors or alternative financing. Alternative lenders may guarantee loans or have more flexibility in their requirements. The following links may get you started in your search for alternative lenders.

Farm Service Agency Loan Programs
http://www.fsa.usda.gov/dafl/default.htm
FSA makes direct and guaranteed farm ownership (FO) and operating loans (OL) to family-size farmers and ranchers who cannot obtain commercial credit from a bank, Farm Credit System institution, or other lender. FSA loans can be used to purchase land, livestock, equipment, feed, seed, and supplies.

Farm Credit Services Loans
http://www.farm-credit.com/
Northwest Farm Credit Services is a cooperatively owned agricultural lender specializing in financing to farmers, ranchers, agribusinesses, commercial fishermen, timber producers, and country home owners in Idaho, Montana, Oregon, Washington, and Alaska. Farm Credit offers a broad range of flexible loan programs and specially tailored financial services to the agricultural, timber and fishing industries and rural areas. Short-, intermediate- and long-term financing at variable-, fixed- and adjustable-interest rates is available. Farm Credit also provides leasing services, appraisal services, and life, mortgage, disability, and crop insurance programs.

Ag Vision: Loans for Young, Beginning, Small or Minority Producers.
AgVision is designed to meet the needs of customers with at least one of the following characteristics:

Northwest Farm Credit Services -An Agricultural Lender
http://www.farm-credit.com
Northwest Farm Credit Services is a cooperatively owned agricultural lender specializing in financing to farmers, ranchers, agribusinesses, commercial fishermen, timber producers, and country home owners in Idaho, Montana, Oregon, Washington, and Alaska.

ShoreBank Enterprise Cascadia
http://www.sbpac.com
ShoreBank Enterprise Cascadia, a nonprofit, provides financing and business assistance to underserved entrepreneurs, small businesses, and community-building organizations.

USDA Rural Development works in partnership with the private sector and the community-based organizations to help fund businesses that create or preserve quality jobs and/or promote a clean rural environment. The financial resources of USDA Rural Development are often leveraged with those of other public and private credit source lenders to meet business and credit needs in under-served areas. Recipients of these programs may include individuals, corporations, partnerships, cooperatives, public bodies, nonprofit corporations, Indian tribes, and private companies.

Equity financing requires that you sell an ownership interest in the business in exchange for capital. The most basic hurdle to equity financing is finding investors who are willing to buy into your business; however, the amount of equity financing that you undertake may depend more upon your willingness to share management control than upon the investor appeal of the business. By selling equity interests in your business, you sacrifice some of your autonomy and management rights.

Most small or growth-stage businesses use equity financing in a limited way. As with debt financing, most of the time additional equity comes from non-professional investors such as friends, relatives, employees, customers or industry colleagues.

Understanding Equity Capital
http://www.sba.gov/financing/capital/equity.html
This website is an explanation from the SBA on the difference between equity and debt financing and a definition of angel investors and venture capital.

New Markets Venture Capital
http://www.sba.gov/INV/NMVC/index.html
The New Markets Venture Capital ("NMVC") Program is a developmental venture capital program designed to promote economic development and the creation of wealth and job opportunities in low-income geographic areas and among individuals living in such areas. This website offers a slideshow presentation and links to contact information.

How to Raise Money for Your Business
http://www.entrepreneur.com/howto/raisemoney/0,5964,,00.html
To help you get your head around the different ways you can finance the growth of your business, entrepreneur.com has compiled mini-guides that cover the basic information on 19 different financing sources. Read through the guides to learn the basics, and then start hunting!

Most business owners are curious about grants because it is free money from the government. The reality is that government grants mostly serve the purpose of the government agency offering the grant which usually has to do with research or scientific purposes. If you do qualify or are interested in a grant you will have to learn how to apply and compete for the grant. You will also have to plan ahead because most grant processes may take more than a year for funding from the time that you are awarded the grant. The following links will give you more information about well known agricultural based grants.

USDA Value Added Producers Grant
The program was created with two primary objectives. The first is to encourage independent producers of agricultural commodities to further refine these products increasing their value to end users. The second objective is to establish an Information resource center to collect, disseminate, coordinate, and provide information on value-added processing to independent producers and processors.

Community Food Projects Competitive Grants Program
http://www.csrees.usda.gov/nea/food/in_focus/hunger_if_competitive.html
Community Food Projects are designed to increase food security in communities by bringing the whole food system together to assess strengths, establish linkages, and create systems that improve the self-reliance of community members over their food needs.

Sustainable Agriculture Research and Education Program
http://wsare.usu.edu/
Sustainable Agriculture Research and Education is a program of the U.S. Department of Agriculture that functions through competitive grants conducted cooperatively by farmers, ranchers, researchers and ag professionals to advance farm and ranch systems that are profitable, environmentally sound and good for communities.

Rural Business Opportunity Grant
http://www.rurdev.usda.gov/wa/BUSRBOG_21.htm
To be eligible for an RBOG, applicants must be a public body, nonprofit corporation, Indian tribe, or cooperative with members that are primarily rural residents.

USDA Rural Development Business Grants
http://www.rurdev.usda.gov/wa/BUSgrants.htm
USDA Rural Development offers a variety of grant programs that facilitate the development of small and emerging private business enterprises, promote sustainable economic development and job creation projects in rural communities with the most need. This site has links to several grant programs

Notices of Funding Availability
http://www.rurdev.usda.gov/rd/nofas/index.html
Notices of Funding Availability (NOFA) published in the Federal Register are summarized daily at this site.

NRCS Farm and Ranch Lands Protection Program
http://www.nrcs.usda.gov/programs/frpp/
The Farm and Ranch Lands Protection Program helps farmers and ranchers keep their land in agriculture by providing funds to purchase conservation easements.

USDA Rural Development
http://www.rurdev.usda.gov
The Rural Housing Service helps rural communities and individuals by providing loans and grants for housing and community facilities. They provide funding for single family homes, apartments for low-income persons or the elderly, housing for farm laborers, childcare centers, fire and police stations, hospitals, libraries, nursing homes, schools, and much more.

Understanding Your Financial Statements
http://www.sba.gov/managing/financing/statement.html
Understanding financial statements is critically important to the success of a small business. This SBA website provides a good overview of the basic financial statements and links to templates that you can use.

Financing Your Business

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