Financing to Start a Business

By. Mary Sullivan

A reader recently asked about obtaining a loan to finance the start of his pastry shop franchise. He is currently training with an existing franchisee to learn the recipes and the business, and he hoped that would help him get a loan to cover the purchase of initial inventory and funds to get him through the early months until the business was self-sustaining. I contacted an experienced commercial banker and asked what weight lenders give various factors when a person applies for this type of business loan. I thought I'd share as a post what I passed on to the reader:

• Top on his list of criteria is how much of the needed funds the business owner plans to put up personally.
• Also high priority is the quality of the franchise company -- "There is a wide range of success/failure factors that separate franchises."
• Planned business location is also a consideration with lenders. "What is the growth trend in that particular neighborhood ... declining, or lots of new construction, etc.? And what is the competitive situation in the proposed location?"

• Two other considerations are: how well thought-out the business plan is, and of course, prior experience. You won't have had ownership experience, but you're getting good practical operating experience.

The reader followed up, telling me of his excellent credit rating and wondering about the proportion of start-up costs he would need personally and how much the bank would be willing to lend. I replied:

• Your excellent credit rating counts for a lot. The percentage of total funding a bank will lend you will depend on how strong are your other factors, but another big consideration is economic conditions outside your control. You've probably have heard that the impact of the current mortgage lending crisis has, to some degree, affected commercial lending; the bank where you apply may be more or less affected than another bank due to the make-up of their own loan portfolio.

• So the answer is, "It depends." Don't hesitate to speak with several banks, and find out what they'd be willing to do for you!

What Really Makes an Entrepreneur

By. Mary Sullivan

Talk abounds on the subject of what it is that makes a successful entrepreneur. The statistics would probably say that more people believe it is that over-worked term "passion". Well, I have known successful entrepreneurs who were very committed to their businesses, but I wouldn't describe them as passionate.

A few days ago, StartUp Nation suggested that the attribute that marks an entrpreneur is "initiative". They gave a good example of someone who is making a success of business through pure initiative. That term is a start, because clearly a person doesn't get a business going without initiative.

My own view is that underlying both "initiative" and "passion" is COMMITMENT. Passion is the desire, and initiative is the impetus to put that desire to work. But without a strong personal commitment, we may give up when the going gets rough -- and yes, I mean when, because it will happen at some point in every startup. So my view is that it is "commitment" that makes an entrepreneur. Not just wanting to operate a business and getting it started, but the focus to follow through on a vision is what really makes an entrepreneur

Do You Have the Right Stuff to Be an Entrepreneur?

What does it take to start a successful business? While there's no such thing as the perfect entrepreneur — even Bill Gates has made mistakes — a number of personal qualities can help you to build a successful business. If you pass muster on most of these traits, you're off and running.

• You can delegate. No matter how smart and energetic you are, it's a mistake to try to attend to every detail yourself. Unless you're a solo act, you're going to have to trust employees to do their jobs so that you can run the business.
• You are a teacher. In order to delegate successfully, you will need people with appropriate skills — and they may have to learn some of those skills from you.
• You are self-motivated. As a small business owner, you won't have a boss to tell you when to get to work. If that's a problem, keep your day job.
• You can work with numbers. You will spend a fair amount of time keeping track of money — expenses, revenues, taxes and the like. A math phobia won't help.
• You don't mind making mistakes. You will make them; the trick is to learn from them and move on. Not everyone finds that easy to do.
• You like to work. Contrary to myth, you don't need to be a workaholic to start a successful business. Many entrepreneurs find that it makes more sense to establish a reasonable working pace — one that lets them strike a balance between work and their personal lives. That said, don't start a business unless you enjoy work. There's going to be plenty of it.
• You don't mind selling. You'll have to sell products to customers, of course. You may also need to sell lenders or other financial backers on the prospects of your company. And you'll need to convince potential employees to accept jobs with your firm rather than going to work for the competition.
• You don't quit easily. You'll encounter obstacles that might stymie some individuals. You'll have more success if you are the type of person who relishes such challenges. A dash of optimism helps; it will help you handle the uncertainty that is part of every venture.