Raising Capital for Your Business

Raising CapitalAn important ingredient to a successful business is adequate financing (capital). The failure to acquire adequate financing often determines whether a business can get off the ground, not to mention whether it can sustain itself after it does. So how much financing do you need and how do you get it? You will require capital for start-up costs (seed money) and, because most businesses incur losses in the beginning months of operation, for your initial operating losses and personal expenses. Be prepared to cover these latter expenses for at least three to six months while the business is given a chance to become self-sustaining. If you are like most entrepreneurs, you may not have the money to cover these expenses.

Tip: Before you begin, keep in mind that you may wish to consult an accountant and an attorney, both of whom can be very helpful in your quest for financing. They can be especially useful in assisting you with the preparation of your business plan--the management and financial blueprint of your company.

How much money do you need?

The first step is determining how much money you need. To do this, you will need to prepare a business plan as well as ask yourself the following preliminary questions:

  • Will you be providing a service or a product? At least initially, a product-producing business typically requires more money because it involves high material and equipment costs.
  • Will you be hiring employees? Naturally, if you are going to provide most or all of the labor, at least initially, you will require less money than if the business required many employees.
  • Will you be investing personal funds? Lenders or investors may require that you invest (and risk) your own money in the business. The amount you will contribute (called "equity") will generally depend on how much you can afford.
  • What will your startup costs be? You will need to estimate your startup costs, which you will pay only once. Your startup costs might be estimated by creating a worksheet similar to the following:
Screen Shot 2017-01-18 At 11.07.06 AM
  • What will your monthly business expenses be? You must also estimate your monthly business expenses and add them up. When you arrive at a figure for one month, you should multiply it by three. This represents the amount of money you should deposit in a savings account for the initial months of operation. Though oversimplified, the following chart is an example of a monthly expenses worksheet:

Screen Shot 2017-01-18 At 11.07.21 AM

  • How much money do you have? After you have calculated your financing needs, determine the amount of cash available. To do so, create a personal financial statement similar to the following:
Screen Shot 2017-01-18 At 11.07.48 AM
  • How much of your net worth is available? Now that you know how much you have, you must determine how much is available to invest in your business. A portion of your net worth, such as equity in your home, may not be liquid (easily converted to cash). Further, if you devote all of your net worth to the new venture, you may compromise your family's financial security. Determine what portion of your net worth is accessible and can be invested without subjecting your family to excessive financial risk. This is your available net worth.
  • How much do you have to get from debt/equity investors? To calculate how much you have to obtain from debt and equity investors, subtract your available net worth from the sum of your startup costs and three-month expense total:



Two ways to capitalize your business

Generally, there are two ways to capitalize your business. You can borrow money (debt) or, if you don't mind sharing ownership, find investors willing to provide the funds you need in exchange for a "piece of the pie" (equity). Debt must be repaid. Equity, however, generally does not; it is simply exchanged for an ownership interest in your business. Which method, or combination thereof, is right for your business depends upon (among other things) how much money you need, your financial situation, the type of business you intend to begin, and how much control over the business you are willing to surrender to others. Before soliciting funds from outside sources, you should consult with your legal advisor to ensure compliance with all federal and state securities laws.


When you think of debt, you think of loans. Generally, a loan is money temporarily lent to a borrower for some specified use. The money eventually has to be repaid (with interest). You or your business, if it is an independent entity, can borrow funds. If you personally borrow the funds, you become the debtor and are personally liable for repayment. You can then either turn around and invest these funds in your business (equity) or turn around and loan the same funds to the business. If, instead, your business borrows from a third-party lender, your business is the debtor, not you. In practice, however, even if your business is the borrower, a lender may request you to personally guarantee the loan, in which case you would be personally liable for its repayment.

  • What should you look for? You should shop around for two things: the right lender and the lowest interest rate. Which lender is right for you depends upon many things, including the lending practices as well as the size, type, and financing needs of your business. Generally, however, you should look for a lender with the following attributes:
  1. Aggressive lending policies
  2. An interest in businesses of your type and size
  3. An interest in serving--and the ability to so serve--your business's various credit and noncredit (e.g., payroll and checking accounts) needs, current and future
  4. Financial stability 

The second thing to look for is a low interest rate. The lower the interest rate, the more money you'll have for your business expenses.

  • What will debt investors (lenders) look for? A lender primarily looks for two things: your ability to repay and collateral. A lender will let you borrow if he or she believes you are capable of repaying the debt. The lender will make a decision after carefully reviewing the following things:
  1. Your credit history
  2. The risk of failure of your type of business (new businesses are considered riskier than established businesses)
  3. Your personal and business income, both current and projected
  4. Your business/managerial experience
  5. Your equity in the business (the amount you contributed to the business)

Lenders also look for collateral--assets that the lender can keep if you fail to repay your loan. Few people can obtain loans without it. There are many forms of collateral, including, but not limited to, real estate, inventory, equipment, and accounts receivable (what people owe you). Unfortunately, if you have little or no collateral, you will likely encounter much difficulty when seeking a loan.

  • What are the advantages and disadvantages of debt? With debt, you do not have to share ownership and control. When you repay the debt in its entirety, the creditor has no interest left in your business. Conversely, loans are difficult to obtain, and once acquired, the loan will saddle you with monthly payments. In addition, you will likely repay an amount much larger than what you borrowed because of the interest charges. If you ever fail to repay, you will be assessed penalty fees, given a bad credit rating, or have the loan "called" (requiring you to pay it immediately in its entirety), which may cause you to lose the business.
  • What are the different types of loans? A loan can be an installment loan or a line of credit, secured or unsecured, and short- or long-term:
  1. Installment loan/credit line. An installment loan is money provided in one lump sum that must be repaid in installments (i.e., monthly). A line of credit, on the other hand, permits the borrowing of funds as they are needed; the funds usually have to be repaid within the year.
  2. Short-/long-term. A loan is considered long-term if its term is longer than one year. Conversely, a short-term loan must typically be repaid within a year.
  3. Secured/unsecured. A loan is secured when the lender is given an alternate form of payment in case of default (you fail to pay). When a loan is secured, the lender is given a security--an alternate form of payment (e.g., a mortgage on a home). The asset that constitutes the alternate form of payment (the home, for example) is called "collateral."


Equity is all the nonborrowed funds contributed to your business. In other words, all the money invested in your business that you do not have to pay back is equity. You, your friends or family, or strangers interested in a new opportunity can contribute such funds. These funds are exchanged for an ownership interest in the business.

  • What should you look for? Generally, you should look for investors who are experienced with, or at least understanding of, your type of business. In addition, you should seek out investors with whom you are compatible. There's nothing worse than sharing ownership of your business with someone you dislike!
  • What will equity investors look for? An equity investor looks for a high return on investment profits. An equity investor is giving you money in exchange for the right to share in the ownership and future profits (and losses) of the business. Essentially, you are selling a piece of your business. Naturally, such an investor is not going to risk his or her money unless you can prove that the business has the potential to be successful and profitable.
  • What are the advantages and disadvantages of equity? Unlike debt, equity investments do not have to be repaid. Because equity investors are eager to make a profit, they might be more willing to take risks than debt investors, who worry about getting their money back. On the other hand, your equity investor will require you to surrender some control over the use of his or her money. This means that you have to consider the opinions of others as to how the business should be run, regardless of how disagreeable they may be. Finally, equity financing is relatively complicated. Paperwork needs to be prepared and filed, and various regulations adhered to (e.g., laws regulating the sale of stock and other securities).

Primary Financing Sources

There are many sources of financing available to you. You should consider each carefully before making any decisions. Among the Debt Sources you could look into an SBA Loan Program. Continental Nationak Bank is a permier SBA provider. The SBA is a federal program that provides technical assistance (in the form of management counseling and informative seminars), and financial assistance (direct loans, loan guarantees, and tax relief). Though the SBA offers direct loans in specific circumstances, the SBA primarily acts as a guarantor of long-term loans for qualified business owners. In this capacity, the SBA usually guarantees 70 to 90 percent of a loan, typically for those in business for more than one year.

For more information on these and other loan programs contact our Small Business Department at 305.643.8240 or fill out the form below.

Important Information

The information published on Continental National Bank website is true and accurate to the best knowledge of the bank at the time of publishing; Continental National Bank cannot be held liable for any actions that are carried out on the basis of that information, and the bank cannot guarantee the accuracy of all the information published. The information and views published on the website are subject to change without notice. Continental National Bank is not responsible for any third party content published on the website. The information published on Continental National Bank website does not in any way constitute advice to customers of any kind; ex. to buy or sell any particular financial instrument, tax advice; and users of the website are solely responsible for any investment decisions and or decisions of any kind, that they may make on the basis of the information published on the website. Continental National Bank cannot be held liable for any damage that may be suffered as a result of the information published on the website or any damage that may be directly or indirectly caused by the use of the website. In addition, Continental National Bank shall not be held liable for any damage arising from an inability to access the website for longer or shorter periods of time.   Information offered through INFINEX INVESTMENTS, INC. Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.

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