Frequently Asked Questions

Before you quit your job or print business cards, it is wise to take stock of personal considerations. Ask yourself:

• Do I have what it takes to be an entrepreneur?
• Am I a risk-taker?
• Am I resourceful and organized?
• Can I support myself and my family financially when cash may be short?
• Will my family and friends be supportive during the start-up process?
• Am I knowledgeable and experienced enough in my chosen field?

If the answer to any of these questions is “no,” you may want to focus on self evaluation and development before proceeding. If most of your answers are “yes,” then it is time to do some research! Get as much information as you can on the feasibility of your idea and on the real experience of starting and managing any business. You can do this by:

• Accessing business publications and data from the library
• Taking seminars and workshops
• Speaking to trade or professional groups which represent your chosen industry
• Consulting with people who are already in the same or similar line of business
• Seeking advice from professional counselors like the SBDC

Obviously, there are specific requirements in each state, county and locality, but it is possible to list the kinds of basic licenses and registrations a new business will need:

• Local — A business license from city, town or county is usually necessary, in addition to meeting zoning laws, building codes and similar regulations.
• State — In most states, if your business isn’t a corporation and your full name isn’t in the name of the business, you’ll have to register under what’s called the fictitious name law, and you should also file for a sales and use tax number. In some lines of business specific licenses are needed.

Federal — You will need to request fro the Internal Revenue Service (IRS) an employer’s identification number (EIN). Also consider requesting a “Going Into Business Tax Kit.”.

The SBDC provides an array of services to established businesses, including:

• Counseling in business planning
• Marketing and promotion
• Financial analysis and accounting
• Access to capital

A business plan precisely defines your business and serves as your firm’s resume by:

• Identifying your business goals
• Describing the products and services you will sell
• Defining the customers to whom you will sell your products/services
• Outlines the production, management and marketing activities needed to produce your product/service and deliver it to market
• Projects the profit or loss that will result from your efforts

Your business plan can also service as a guide to make sure you stay on track with your goals and objectives. Writing your plan is an educational process in which you learn about your business and how you expect it to operate. It should reflect your goals, objectives, priorities, and management style.

A SBDC counselor will not write a business plan for you, but will assist in assessment of the plan. They may offer recommendations in order to make it a viable business plan to gain financing thru a lending institution.

A well thought-out business plan generally takes anywhere from six months to a year to complete, but it can be less depending on how committed you are to the business and how much time you are willing to spend on writing your plan.

The SBDC does not provide financing, rather, our assistance is technical and educational in nature. We work with banks and other lending agencies and organizations to assist in putting together financial projections, but the actual financing comes from outside sources. Generally, you start with the bank where you normally do business and have established accounts. You may have to apply at several lending institutions or look for alternative sources such as outside investors.

Generally speaking, grants given to business start-ups are very rare. An exception may be for a high-technology business or for businesses producing products that can be used by certain agencies or departments involved in our nation’s defense. Also, non-profit businesses are sometimes eligible for grants.

The kind of financing most entrepreneurs seek through commercial lenders is debt financing, and most banks provide debt financing for existing and start-up businesses. Banks vary substantially in their lending practices. While one bank may decline your loan application, another may be willing to take a higher risk or be interested in lending to small businesses. It is advisable to understand a bank’s lending guidelines before applying for a loan. The general guidelines that would enable a lending officer to at least make an informed decision regarding your loan proposal are as follows:

• Consideration of the business idea, usually explained in a business plan
• Collateral available to secure the loan
• Down payment (also known as equity in an ongoing business)
• Credit history and personal financial net worth
• Management ability
• Ability to repay the debt
• Conditions of the economy and/or market area

Each form — sole proprietorship, partnership, corporation, or limited liability corporation — has its advantages and disadvantages. The one you should pick depends on your circumstances, including:

• Your financial condition
• The line of business you’re entering
• The number of employees
• The risk involved
• Your tax situation

There are four types of insurance that are generally considered essential for small businesses: fire, liability, auto and worker’s compensation.

• Fire insurance — Compensates you for the loss of and damage to your business property by fire (may be required)
• Liability insurance — Helps protect you against lawsuits for physical damages to a customer while on your property and for liabilities arising from the use of your products/services (may be required)
• Auto insurance — Either private or business, is required by law for any vehicle used for business purposes
• Worker’s compensation insurance — Pays benefits to workers injured on the job to cover medical care, part of lost wages and permanent disability in return for immunity from civil lawsuits by employees over such workplace injuries

Before buying any insurance, consider the risks that should be covered, compare costs from the different companies, and get professional advice from an insurance agent.

Committing your own funds is often the first financing step. It is certainly the best indicator of how serious you are about your business. Risking your own money gives confidence for others to invest in your business. You may want to consider a partner for additional financing. Banks are an obvious source of funds. Other loan sources include commercial finance companies, venture capital firms, local development companies and life insurance companies. Trade credit, selling stock and equipment leasing offer alternatives to borrowing. Leasing, for example, can be an advantage because it does not tie up your cash. Ask your local SBDC for information about these various sources.

The SBA does not make direct loans. Its loan activity is in the form of participating loans and loan guarantees. You must deal with a bank to reach the SBA. You can think of the SBA as a level above your bank that is providing incentives to your bank to make it easier for you to get debt financing. The bank plays a major role in evaluating your loan application and in administering the loan. The bank’s agreement is necessary before the SBA will get involved. Your local SBDC can help you find a bank for your financing needs.