Ask SCORE: Finance options for a start-up business | Business News


QUESTION: I want to start a business of my own. I have heard it is quite difficult to obtain bank financing for a start-up operation. What advice can you offer?

ANSWER: To begin, certain types of businesses will meet resistance from lenders, due to their failure rate. Restaurants and specialty stores, such as book shops, gift shops, hardware and office supply businesses, that compete with online and big-box stores are prime examples.

Unless your product or service fills an underserved niche, you will be fighting an uphill battle. Niche marketing is an advertising strategy that targets a section or subset of an entire market. Rather than marketing to anyone and everyone, it hones in on a particular group of potential customers who are most likely to benefit from your product or service.

Banks think of start-up ventures as risky, especially if the entrepreneur doesn’t have a proven track record. So unless you have worked and have experience in the type of business you are considering, your chances of obtaining bank financing are limited.

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An entrepreneur may have a better shot at a bank loan if they buy an existing business with a solid performance history. In this instance, you have a loyal customer base, capable employees and a good location, with furniture, fixtures, supplies and equipment in place.

Another avenue of less resistance is to consider purchasing a franchise. Here you have a proven business model to work with and are guided, to some degree, by the franchise company.

There are many franchise opportunities, but before investing, take care to fully investigate by contacting other franchisees. Also, read the franchise agreement carefully and have your attorney review it before signing.

A recent Wall Street Journal article pointed out that such entities are among the most common types of business loans that are backed by the Small Business Administration because they follow a proven business model.

It should be noted that the SBA does not lend money. Rather, it ensures banks against loss due to default by the borrower and its fee is added to the interest rate charged by the lender.

For certain, if you do not have adequate working capital, your chances for success are doubtful. In addition to start-up and/or acquisition expenses, you will need six to nine months of working capital to tide you through seasonal and other events that affect sales.

My best advice is to begin now to develop a written business plan that includes 12 to 24 month income and expense projections, based on research. Many outlines of business plans are available for purchase online. SCORE also offers a free business plan outline available at– statements-template- gallery. In this manner, you can determine your chances of success before you spend the first dime.

Gray Poehler is a volunteer with the Richmond Chapter of SCORE, Counselors to America’s Small Business. To ask a question or request free and confidential business counseling, go to Learn more about SCORE’s workshops on the website or by calling (804) 350-3569.


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