Starting Your Business
Greater Grays Harbor, Inc. can help you in the early stages with your business. We can provide helpful information on financing, marketing and operating your business. We also partner with the Small Business Development Center, which is a great resource for would-be business owners. Click SBDC to learn more about this organization.
Click business plan outline to download a business plan template in Word format.
Your Business Plan
When you start thinking about a new business, begin thinking "written business plan". A business plan is a good idea for any business, but if you require financing, it's mandatory. Financial lenders will not consider your idea without seeing your plan including a financial pro forma. The content of your plan should cover:
- What you want to do
- Why you will succeed
- Where you will conduct business
- What your background is
- Who your competition is
- How you will make your product and at what cost
- How you will sell your product and at what price
- How much money you project making and requiring
Click business plan outline to download a business plan template in Word format.
Financing Your Business
Every business requires capital to begin or expand operations, purchase inventories, and cover overhead costs. Your best source of capital is from your own savings, personal assets, and business' earnings. The next best source is money from your family and friends. These people are usually more forgiving about getting paid on time, demand less collateral to cover the loan, and are less likely to repossess if you cannot repay.
If you do not have the capital to start or expand your business, you need to decide whether you want to raise money by borrowing it (debt) or selling part of your company (equity). Debt and equity financing both have advantages and disadvantages.
First, let's discuss debt. There are various types of debt financing for your business. Conventional loans from banks are the most common, but government guaranties and revolving loan funds are other possibilities. No matter which type you pursue, every lender will consider the 5 C's of credit analysis before lending you money: Condition, Cash flow, Character, Capacity, and Collateral. Condition is whether the bank is in a position to loan to your sector of the economy and whether it foresees long-term demand in that sector. Cash flow is the ability of your business to repay the loan out of operating cash flow. Character is your personal and business credit history of fulfilling financial obligations. Capacity is the demonstrated history of you and your partners to manage and grow the business. Collateral is your ability to secure the loan with other assets if you do meet your payment obligations.
Banks make different types of conventional loans and the terms of a loan are generally dictated by how the money is used. For example, loans for inventory are usually short term and loans for property, land and buildings are usually long term. Spend some time shopping around for loans and choosing a banker. You may have a great bank, but it may not be strong in your industry, or the conditions might not be right for them to loan to you. And always remember to bring your personal and business financial information and your business plan with you when you talk with a banker.
The Small Business Administration (SBA) offers a variety of special loan programs to help small businesses. The great majority of SBA loan programs, however, is guaranteeing loans (SBA 7a program) rather than loaning money. Most commercial banks are qualified SBA lenders. They can process loan applications for you and have loan guarantees approved by the SBA. The guarantee assures the bank or lending institution that if a borrower defaults on the loan, the government will cover the bank's losses up to the program’s guaranteed percentage. Loans are through the bank and guaranteed by the SBA for a fee.
The SBA 504 loan program is popular with lenders and businesses. This program allows financing of business expansions, but is limited to fixed asset acquisition of land, buildings, and equipment. The SBA sells bonds to fund a percentage of a project, the bank loans you a determined percentage and you put down the balance. The advantage to your business is receiving low, fixed rate financing, while the advantage to the bank is reduced risk.
The United States Department of Agriculture (USDA) has guarantee programs similar to the SBA for businesses in areas with low populations such as Grays Harbor. Most commercial banks are qualified lenders, can process loan applications and have loan guarantees approved by the USDA.
Small business loans from commercial banks have become harder to obtain. Revolving Loan Funds (RLFs) have become an important source of financing for entrepreneurs, particularly in rural areas and for women and minority business owners. These funds also provide technical assistance, which can be crucial to a new business. In Grays Harbor we are served for RLFs by ShoreBank Enterprise Cascadia. ShoreBank additionally has a lending program called New Market Tax Credit allowing a company to borrow at tax-exempt rates.
Another source of debt financing is industrial revenue bonds (IRB). IRB's are available to smaller manufacturing and processing companies for land, buildings and new equipment. Working capital cannot be financed through this method. IRB's are issued through state and local financing authorities. The advantage to the borrowing company is that this type of financing permits a company to borrow at tax-exempt rates, which provide a great savings in interest costs over conventional financing means. Contact the Grays Harbor EDC for additional information.
Grays Harbor has lots of banks and credit unions that have money to lend to help your business succeed. Here is a partial list.
Now for equity financing. Equity investors become owners of your business. They don't require a set payback schedule; rather they share in the business profits and growth in equity. There are different types of equity investors.
- The simplest is the "friendly investor" - a relative or friend - who gives you money and takes a share of the business in stock. They are the least costly and least demanding.
- Another is the wealthy individual, or "angel", who provides funding for startups as a means of increasing wealth or satisfying a personal interest in your product.
- Then there are venture capitalists, who professionally manage funds that they accumulate from small groups of investors who seek high-growth ventures that will result in substantial return.
- And finally, there is stock offering (IPOs) that make your stock available to a large number of investors.
A word of warning: funding received from angels and venture capitalists almost always means their active involvement in your company. Their sole objective in investing in your business is to sell it within 3 to 5 years in order to realize a substantial return. They will require positions on your board and chairmanships of key committees and they will watch operations closely. They have good reason. They know that of the 10 companies that they carefully choose for investment, 3-4 will fail, 5-6 will get along, and 1-2 will do well. They will stop funding the 3-4 poor ones as quickly as possible, sell the 5-6 mediocre ones to recover their costs, and initiate an IPO (initial placement offer) for the 1-2 successful one in order to generate a high return for their fund and money to loan to new companies.
Options for financing your business and capital needs
- Bank loans
- SBA 7(a)
- SBA 504
- Friendly investors
- Venture capital
- Stock offerings
Manufacturing and technology companies locating in Grays Harbor County can tap into a variety of tax incentives. Grays Harbor County offers a sales and use tax exemption on buildings, equipment and machinery used in manufacturing. A qualified manufacturer can have sales tax exempted on the entire amount invested in construction and installation. This exemption program also includes sales tax on construction labor, equipment installation and equipment replacement parts with a life over one year. If a manufacturer leases property and buildings, they can take advantage of program savings passed on from the property owner.
Click the link for a complete list of Washington State business incentives.