How to start a business is one of the oldest topics around.
The entrepeneur must have an idea of the targeted business
and some practical experience in the industry by either
being a previous employee or going to hire key employees
who understand the make up of the industry. Examples of
this could be a dump truck and/or over the road truck
driver who has been offerered an opportunity to lease on
with the employer but must obtain his own truck first. Once
he has obtained the necessary truck requirements and
financing, then his rate of income would jump up to a
contract level. He would also be at risk for the operating
expenses of the truck such as fuel, maintenance, labor etc.
Another example of a start up business would be a limousine
driver who has many years of driving experience and wants
to branch out on his own. In both instances, this want to
be enteprenuer has experiene in their respective industries
and has a working knowledge of the business.
Additionally, there are many opportunities out there where
a person was either tired of his employment or had a vision
to start up a business with a demand already in place for
its product and service. These situations require a little
bit more scrunity because the lack of experiene may be a
hinderance for obtaining overall success. An example of
this is where there is excess demand to install glass for
apartment buildings, hotels, residental houses, retail
stores, apartments etc. The make up of this business seems
simple on the surface but cost accounting of each job is
required, glass must be bought properly, union dues are
required, management of each job is essential to its sucess
of the company, and related taxes, licenses and insurance
may make this business start up into a run away nightmare.
In this case, the lack of experience without superior
management and controls in place can outweigh the demand
and supply cycle.
In any case, whether you have experience in the industry or
an idea to start a business, a business plan would be a
good idea to develop. This business plan should be created
by the ownership and/or management team to lay out the
particulars to the development of this start up business.
This business plan can be brought in its raw form to an
experience professional such as a C.P.A and/or attorney for
its prepartion and comments. This business plan can be as
simple as one page or as detailed as a book, the decison is
yours. This business plan is in its simpliest content is
what the business is, how to plan to finance the start up
costs to get it running and how you plan on maintaining the
operations. This business plan may have a projection for
funds needed to commence the start up phase and a budget
for the profit and loss of the curent operations of the
business in detail.
The reason a business plan is needed because the
entrepreneur or ownership team is probably going to need
some financing to get the business of the ground. The types
of start up financing can be in a form of a loan, equity
financing and leasing such as equipment, trucks and other
pertinent items. This area probably is the key component
whether the start up business gets off the ground or not.
In either case, the personal credit of the ownership will
be investigated by the banking institutions for a loan and
the lease. A personal financial statement and prior years
income tax returns may be required as well to show
financial strength. In the equity or venture capital arena,
the group of prospective could invest money in your start
up business for an equity interest. This could be quite
complicated and is beyond the context of this article.
For this article, we are going to discuss the loan and
lease options for the start up business. Most banks that
are lending money for a start up business are very cautious
and will require excellent credit for the applicant to even
be considered. This may require a credit score of 700 or
higher. This first requirement could eliminate over 80% of
the applicants. Even if the credit score can be obtained,
the bank may require 20% down payment on the investment and
personal assets that will be tied up, assuming the assets
are even there to consider. This banking formula may be
good for a small pool of entrepeneurs or investment
partners. The bank properly would still charge a high rate
of interest and attach all the assets that can get their
hands on for collateral. Start ups for dump trucks, over
the road trucks, limousines, restaurants and similiar
industries would be considered a high risk for the banks
and properly rejected either way.
Lets take a look at the leasing aspect of this start up
business. Leasing is a form of renting, items such as
construction equipment, commercial and work trucks, and
office and computer equipment but with a buyout clause at
the end of the lease to take title. The requirements to get
into the lease may be as low as first and last payment and
as much as 25% of the cost. Each situation is different and
this offers the start up business a way to invest very
little money into the business. Additionally, all other
monies can be used for start up operating expenses such as
marketing and other key areas. Leasing is not a new form of
financing but could be a lending solution to the start up
business. Many lenders have repos and dealer finance
programs for the start up and seasoned business. Credit
qualifcations can be as low as 575 for the personal credit
score and up to $100,000 for available financing. Once
again, in any lease arrangement, the owner or owners would
be personally guaranteeing the lease.
In either case, the start up business has a good
opportunity to succeed if you have some back up money to
put into the investment. You probably need anywhere from
3-6 months additional funds available to keep aside to
assist the start up. The lenders look favorably if you have
industry experience, a good management team and possibly
additonally income coming in from a second job and/or a
working spouse.
The final part of the equation is that most lenders out
there require full documentation. This means prior income
tax returns, personal financial statments, appraisals and
prior months bank statements. Additionally, there are some
lenders out there that will do an application only program,
especially for leasing. This could eliminate the hassle for
all the paperwork and might justify whatever additional
expenses might be required.
In conclusion, happy hunting for your business startup,
strongly consider preparing a business plan, either for
yourself or your lender. In addition, shop for an
appropriate lender that will meet your financing needs.
Please also consult with an accountant and attorney to
review your paperwork to ascertain that all your basis are
covered.
----------------------------------------------------
J.M Luna has over thirty years in the financial field. This
includes accounting and taxes, leasing, hard asset money
and working capial loans, and commercial financing. U.S
Corporate Capital Leasing Group assists start up and
seasoned businesses in all different types of industries.
http://www.cclgequipmentleasing.com/Business_Finance.htm
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