<<NAWBO Advice

Advice on Financing Your Business Idea - The Money Chase

What the Financial Experts Say

While Ice Tubes rapid growth and success may be unusual, Moore's difficulty obtaining outside financing is not. While more women have bank credit than in decades past, they still lag their male counterparts in the amount of capital available to them: in 1998, 34 percent of women had bank credit of $50,000 or more, compared with 58 percent of male business owners, according to the National Women's Business Council.

Another less obvious, but equally important factor influencing women's source of financing is the fact that many female entrepreneurs are reluctant to seek outside financing, our experts say. Women tend to be risk averse and so prefer to keep business expenditures and growth at a more manageable, less costly level. Plus, many entrepreneurs, no matter the sex, are reluctant to share their "baby," and avoid financing arrangements that would force them to give up equity.

As a result, many women, including Moore, rely on personal savings and charge and credit cards to start their businesses. In fact, credit cards and personal savings are the main source of financing, according to a NAWBO survey. That said, there is nothing wrong with limiting financing to savings and credit cards, our experts agree. For many women, it provides sufficient seed money and doesn't relinquish control of the company.

If, however, your business idea is a high-growth, cash-intensive concept that will require significant startup funds, you need to understand other financing options. And if you envision using credit cards to get yourself up and running, but plan on tapping other sources for expansion, as Moore did, you need to understand the full gamut of financing options. Read more about the most common types of funding to learn which is right for you.

First Steps

Before you start the money hunt, make sure your business plan is polished and up-to-date. Even more important, be prepared to summarize your business plan in a 60-second pitch.

"Whether you're seeking a bank loan, working with a venture capitalist, or talking to a friend or neighbor, you have to be ready to explain why you are a good investment," says Whitney Johns Martin, founder and CEO of Capital Across America, a Nashville, Tennessee-based Small Business Investment Company (SBIC) that funds women-owned firms. "Most women gear their 60-second pitch toward how great and wonderful their product is, but that's not the story you need to tell your potential investor. They want to know how they will benefit by investing in you."

Once you've fine-tuned your pitch, determine exactly how much money you need and create a detailed plan for how you will use it. Any potential lender or investor will demand to see this, and figuring out your long-term needs and goals ahead of time can help you narrow your financing choices. For example, if you know you only need $15,000, you might not bother applying for a bank loan. If, on the other hand, you anticipate rapid growth and major expenditures, you might want to get a credit card for everyday expenses and obtain a bank loan for larger expenditures.

"One of the most important things women entrepreneurs need is an understanding of how much money they need to succeed--not how much money they need to get by, but how much they need to really succeed," says Nell Merlino, co-founder and CEO of Count Me In, a New York-based organization that makes small loans to women entrepreneurs.

"You might think, 'If I just had $1,000, I could do this,'" she says. "But what if you started thinking about what you could do with $5,000, $10,000, $20,000 or even $100,000?   It makes you think about growth and all the things that go into making a business successful in the long term."

Next, determine what time of financing you are looking for, equity or debt financing. In simplest terms, equity financing requires you to give up a small stake in the company in exchange for cash; in debt financing, money is borrowed with the agreement that it will be repaid with interest. You will also likely need to put some collateral up against the loan, such as your house, business equipment, etc. Most startups prefer debt financing, but if you are seeking a large amount of capital or are already debt heavy, you may want to consider equity financing. If you need advice on which type is most appropriate for your business, take advantage of the free counseling available at your local Small Business Development Center (SBDC), Women's Business Center or SCORE chapter. All are affiliated with the U.S. Small Business Administration and staffed by seasoned professionals.

Finally, you need to establish yourself as credit worthy and credit ready. Many married women entrepreneurs realize that they have poor or no credit because their assets (house, cars, etc.) are jointly owned with their husbands. If you don't already have a credit card in your own name, apply for one. Even if you don't intend to use the card to finance your business, it will help you establish a credit rating.

It might be worth your while to obtain a copy of your credit report. Any bank or lender will run a credit check, and it's best to know ahead of time if there are any potential problems. Some red flags are simply misunderstandings that you could clear up before your credit report is in the hands of a potential lender.

Page 1 2 3 4 5 6 7

Return to Top

Par Excellence is the respected voice amidst the chatter of other women's magazine titles. In Par Excellence top female executives share information on all the topics that their counterparts crave, including networking, executive coaching, mentoring, financial planning and financial strategies for women, fashion, technology, marketing trends, family, healthy lifestyle, success strategies, diversity & inclusion and much, much more.