If you want to succeed in your business, it's a good idea to know the business finance basics so that you are able to get the right funding for your business. The choices that you make for financing a business can have a large effect on the total amount you pay.

There are many different ways that you can secure business financing. Each method has its own set of advantages and disadvantages. The important thing to consider when looking at commercial finance companies is how much money you need and how you can pay it back.

Before you apply for corporate finance:

1. Get your own finances in order. Business lenders will look at your business' credit score to determine your credit-worthiness. If you are a new business, they may look at your own credit score.

2. Decide how you will use the money you get from commercial lending. Before a lender will agree to give you money, they want to know how you will spend it.

3. Plan to pay it back. Once you get business finance money, you will have to start repaying it. Do you have the cash flow to make that happen?

Action Steps
The best contacts and resources to help you get it done

Get commercial financing through an SBA loan to start your business

The government's Small Business Administration program wants to help your business succeed. One way that they do this is by backing the loans that banks give to new business owners. This makes banks feel more confident about loaning you the money.

I recommend: US Bank offers SBA loans to business owners. You can also find the loan application on the Small Business Administration website.

Seek out business financing from venture capitalists

Venture capitalists will give you the money you need for your business in exchange for a percent ownership in your business. Venture capital is a good idea for people that have a large plan that requires a substantial amount of money.

I recommend: Check out Garage to see if your business idea fits the types of products they are looking for. Edison Venture is a good choice if your business is in the expansion stage.

Ask commercial lenders for a line of credit to fund your business

For small business owners, a line of credit may be the best option. This allows you to borrow money on an as-needed basis, which means that you don't have to pay interest until you actually need the money.

I recommend: Bank of America offers a Premium CreditLine for qualified business owners. Business credit cards are another great way to get a line of credit for your smaller purchases. Compare offers through Credit.com.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Have a lawyer read all of the fine print before you agree to work with a commercial finance company. There could be hidden costs or higher interest rates that you weren't aware of. You want to be sure that you understand what you are getting into.

Your business success depends on your ability to secure adequate financing. Being under funded is one of the most common reasons a start-up venture fails. Knowing where to look for funding is the first step to accessing capital; being prepared to convince investors to fund your business is the next. Before starting your search, consider:

1. How much money you need.
2. How you'll spend the money.
3. How you plan to repay the loan.

Action Steps
The best contacts and resources to help you get it done

Take stock of your personal finances

The primary source for funding a new venture is personal finances. However, many experts say this method is the riskiest financing option. The reason: you're putting up your own collateral to finance your business. If you take out a second mortgage on your home or use a line of credit, you can wipe out your assets if your business falters. Other options such as credit card loans or tapping into personal savings are equally risky.

I recommend: Whether you decide to self-finance or seek an outside loan, check that your personal credit history is in tip-top shape with a credit report from Equifax, Experian or Trans Union. Since you don't have a business credit history, suppliers and lenders will base their decisions on your personal credit history.

Be prepared

No matter where you turn for capital, you'll need to provide solid documentation that your business concept is sound. Be prepared with a convincing business plan, cash flow projections and personal financial statements and tax returns. With the right materials, you can convince lenders and investors that you'll be able to repay the loan.

I recommend: Get help writing a business plan with Business Plan Pro software.

Friends and family connections

Money that's raised privately can be a boon, because it may be interest free or low interest. However, you should be aware that interest-free gifts may have tax implications. Loan requests should be professionally presented and include detailed financial projections. Avoid the temptation to forego formalities with loved ones. Draft a promissory note when getting a loan from friends or family so that interest payments are clearly detailed. Be prepared that if the business fails, it could damage personal relationships with investors.

I recommend: Download a promissory note template by clicking on your state at InternetLegalResearchGroup.com or at BusinessNation.com.

Go through banks or credit unions

If you can show that your business proposal is strong, you may be able to land a loan from your bank or credit union. These loans are issued in many types, with varying interest rates and maturity dates. Most are secured against hard assets, such as real estate or equipment.

I recommend: Before heading to a bank, visit your local Small Business Development Center. They can offer advice on how to make your presentation to bankers and direct you to banks that are start-up friendly.

Look for angel investors

Angel investors are individuals or groups that provide capital for business start-ups, often in exchange for ownership equity. More money is invested annually through angel investments than through venture capital financing.

I recommend: Find a directory of angel investment groups at the Angel Capital Association or send a request to find angel investors at GoBigNetwork.com.

Consider venture capital

Venture capitalists fund few start-ups and look to make large investments, typically over $1 million. However, the U.S. Small Business Administration (SBA) licenses and regulates the Small Business Investment Company Program (SBIC), which does make venture capital investments in start-up businesses.

I recommend: Check into the SBIC program to see if you can take advantage of this option.

Apply for an SBA loan

Nike and Apple Computer got their start with SBA equity loans. The money doesn't actually come from the SBA; it comes from participating banks. The SBA simply guarantees the loan, which helps budding entrepreneurs who might not normally qualify for a loan.

I recommend: Find out if there's an SBA loan that's right for your new venture.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Assess the creditworthiness or investment potential of your business concept before seeking funding.
• •  There's no silver bullet remedy for landing financing. So don't limit yourself by trying to force the wrong fit.
• •  Have a sense of your strongest assets when pitching potential investors or banks.
• •  Don't seek investors through classified ads.
• •  Your financing should align snugly with your business plan.

Most new business owners require some type of business financing in order to get things off the ground. Making the most of business finance is an essential part of your success. If you spend capital on the wrong things, you are likely to run out of money that you need for other expenses.

Commercial finance companies look for smart financial planning before they are willing to lend you money. You must be able to tell them in detail how you plan to spend the money that you want to borrow.

When you are thinking about business finance, consider:

1. What the best way to spend your money is. Consider making the most of business finance to be successful.

2. Where you can get the best returns on your money. As you spend the money you receive from a commercial financing company, it's important for you to put it into areas where you will get the biggest returns.

3. How you will budget the money. You should already have a budget written before you apply for business lending.

Action Steps
The best contacts and resources to help you get it done

Think about corporate finance for your start up costs

When most people think about financing a business, they think about the costs involved in getting the business started. Speak to a bank representative about getting the funding you need to start your business. This should cover your basic operating expenses and any goods you need.

I recommend: C-Loans is a popular source for commercial funding. It allows you to easily apply for funding from a variety of lenders. The Small Business Administration backs loans offered by many banks. This may make it easier for you to get a loan through a regular bank, such as Wachovia.

Use commercial lending to purchase a property for your business

Many small business owners are able to work from home, but others need an office or retail space in order to conduct business. A commercial real estate loan can help you to get the money you need to buy this property.

I recommend: Commercial Direct specializes in commercial mortgages for business owners. Major banks, such as Wells Fargo are also a good source for commercial mortgages.

Use business lenders to lease equipment needed to run your business

New business owners may not have the available cash flow to purchase much needed equipment outright. Leasing equipment allows you to use your start up capital for other necessary items.

I recommend: Whether you are a new business just starting or an old business looking to expand, eLease offers leasing options for you. Chase also offers qualified business owners the financing they need to lease equipment for their businesses.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Many people consider looking for venture capital or angel investing as a source of business finance. This seems ideal because you do not have to pay the money back. Keep in mind, however, that you will give up some control over your business if you decide to go this route.

No matter what the size of your business is, you will require financing to maintain it and make it grow. Depending on the size and age of your business, financing will come from a variety of sources, including debt, or equity from limited partners. Established companies tend to generate much of their financing from internal sources, but only if they practice effective cash management. New firms, and ones that need to grow quickly, get their financing from external sources, such as banks and venture capitalists. To help you get acquainted with business finance, read through and understand these key terms.

Action Steps
The best contacts and resources to help you get it done

Debt

Debt is a very basic form of business finance, but it can take many forms. Debt includes bank loans, micro finance and public bond issues from large companies. Many businesses prefer to use debt as external finance because the owner of the business doesn't have to share ownership with any partners, and because the interest is often tax deductible.

I recommend: To get a better idea of debt as a source of business finance, take a look at this article from BusinessFinance.com.

Cash management

Effective cash management is critical for developing a pool of internal funds used as a source of business finance. Internal funds are the safest funds to use, because you do not incur any debt obligation, and you do not have to share the decision-making authority in your business. But if you aren't managing your cash properly, you won't be able to create a pool of internal funds on which to draw.

I recommend: This article from Mansueto Ventures, which publishes "Inc. com," gives a great explanation of cash management.

Limited partner

Sometimes debt financing is undesired or not feasible, and you need to take on a partner who will supply some cash but won't interfere with the day-to-day operations of the business. This source of business finance is labeled a limited partner. Such an individual's liability is limited to the amount of cash the partner invests in the business, hence the 'limited' part of the title.

I recommend: VC Experts defines a limited partner.

Venture capital

If you are starting a new business or own a very young firm that needs to grow quickly, then venture capital might be the right source of business finance. Venture capital is for those firms that need more money than a bank is willing to lend, or for a business that's too risky to get standard bank financing.

I recommend: Check out this article from Investopedia to get a more complete idea of what venture capital involves.

Operating lease

An operating lease is an indirect form of business finance for a firm that needs some equipment, vehicles, or office space, and can't afford to buy them outright. Rather than borrowing money to purchase the assets, and then paying back the money to lender, a firm can lease the assets from a lessor. The lease secures the asset and usually maintenance for the asset, and in turn the firm pays the lessor a periodic payment.

I recommend: This article from Entrepreneur Media gives you the pros and cons of operating leases, using the technology sector as an example.

SBA

SBA is the acronym for the Small Business Administration. The SBA is part of the U.S. Federal Government. It does not actually lend money to small businesses; rather, it helps small businesses find private financing. Many banks work with the SBA to fund businesses often ignored by financiers.

I recommend: Get more information on business financing “straight from the horse’s mouth.” Check out SBA's FAQs section of small business financing.