qprev_HBB Manual 2.qxd - Small Business BC

Secure Operating CapitalEquity FinancingEquity means ownership. With equity financing, alender makes money available for use inexchange for an ownership share in the business.This could be as a silent or limited partner (notactively involved in the business) or as ashareholder. Whether equity financing is possibleor a good option depends on the businessstructure and relationship between the borrowerand lender.Debt FinancingWith debt financing, the lender charges interestfor the use or “rental” of money loaned, but doesnot get a share or equity in the business. Debtfinancing is familiar to most people because it isthe basis of most personal credit.A line of credit – common in business – is a typeof debt financing. With a line of credit, a bankgives a business an upper limit to which it canborrow, for a set interest rate. The businessdoesn’t get the loan in a lump sum, but draws onthe line of credit for funds as it needs them.Interest is only paid on the amounts borrowed. Aline of credit can be an important tool for copingwith cash flow problems. It may also be the onlyfinancing arrangement that a home-basedbusiness needs as a back-up for operating capital,although this is not as likely if investments areneeded in machinery, equipment or inventory.Collateral or SecurityCollateral is what you have to put up to secure aloan. This security reassures the bank or otherlender that if circumstances make it impossiblefor you to repay, the lender has the right to takesome identified thing that covers at least part ofthe value of your loan. As you consider differentkinds of financing and research what is available,pay attention to the collateral each requires. Theusual collateral for home-based business loans ismortgages and personal guarantees.Handling LoansIf you successfully get a loan, make it a rule ofbusiness to keep your lender informed aboutbusiness developments. Even if things don’t goaccording to plan – and hardly anything does –better that your lender knows how things standbefore you need help. The better the relationshipbetween a business person and the bank or otherlender, the better the business’s chances ofgetting advice and possibly an additional loan ina marginal situation.Seek Additional FundsDon’t wait until your business plan is finishedbefore you go and talk to people at lendinginstitutions. When your business concept is fairlywell developed, and you know generally whatyour financing needs will be, make appointmentswith several lenders to talk about a business. Getinformation about different kinds of loans and72solutions for small business home-based business