Among the most frequent questions I get from entrepreneurs is what grants are available for new businesses and how do I get a business loan. Securing business capital can be frustrating and defeating for many individuals who dream of turning their unique ideas into small businesses. Grants are nearly non-existent for most startups unless local community organizations or government agencies offer financial incentives.

To help reduce barriers for startups, the U.S. Small Business Administration (SBA) recently launched a working capital line of credit to better meet the needs of small business customers.

The agency’s working capital pilot works through existing SBA 7(a) program lenders using an innovative structure to give business owners and lenders more affordable loan options and flexibility. These enhancements include transaction-based loans to help businesses fund individual projects or orders earlier in the sales cycle. The pilot also provides asset-based loans to help business owners borrow against existing assets for such specific purposes as export-related sales and the home energy rebate program funded by the Inflation Reduction Act.

Even with this pilot program, experienced business owners know they must set financial goals to keep their companies on track. Here are five simple steps entrepreneurs can take to help navigate the lending process:

Know your tolerance for financial risk. Starting a new business brings a certain level of inherent risk. There are no guarantees the business will be successful or make a profit in its first few years of existence. Be prepared for an emotional roller coaster and brace yourself for periods of financial uncertainty.  This is especially true if you use personal savings, a 401(k) or home equity line of credit to fund your venture. Know your level of risk aversion up front and have a plan to counter possible losses.   

How much money does it take to start a business? Most entrepreneurs create revenue projections that are far too optimistic. They underestimate expenses and establish breakeven time frames that are too short. Work with an experienced business counselor who can create realistic revenue projections.

Commercial lenders are banking on your future success. Most lenders loan money based on such factors as repayment ability, credit history and borrower experience. Even a compelling business plan might not overcome a borrower’s poor or marginal credit history. It could take two or three years of operations before a new business loan will be based solely on the company’s credit and financial history. However, such organizations as community development financial institutions, microlenders and small business lending companies offer more startup friendly eligibility requirements.

Learn to read and understanding basic financial statements. Income statements, balance sheets and cash flow statements each tell a different part of the story about a company’s financial condition. Together, they can be used to discover weaknesses and strengths. Lenders use ratios derived from various sections of financial statements to provide clues to where a business owner needs to implement corrective actions before a situation becomes alarming.

Cash flow is the life blood of a business. A business can be profitable on paper, yet fail from lack of cash flow. Important aspects of cash flow include the timing of accounts payable and receivable, inventory turnover, fixed expense loads and variable costs. Without a solid foundational knowledge of these areas, a business owner faces challenges to manage the company’s overall financial health.

President Joe Biden’s economic boom is real, and entrepreneurs across the country are starting businesses at record rates, hiring American workers and making our communities stronger. The time is right to start a new small business. But establishing the right financial expectations can mean the difference between a failed opportunity and successful lifetime adventure.

For more information on starting your small business, visit the SBA website at www.sba.gov and remember to follow us on Twitter (X) @SBArockymtn.
In addition, connect with one of our many resource partners in the area that can assist you with free one-on-one technical assistance related to financial planning and projections. Visit  www.sba.gov/local-assistance to find a center near you.