BUSINESS COMMENT
12 • June 2021
Critical basics
Coast River Business Journal
Financing your new or existing business
By Kevin Leahy
Executive Director
Clatsop Economic Development Resources
The fi rst step in fi nancing your business is
to decide how much you need.
• If you are starting a new business, you
should look to your calculations on busi-
ness startup expenses to help determine
how much you need.
• If you have an existing business, you
may have either short- or long-term bor-
rowing needs. Your monthly cash fl ow
projection should provide a good picture
of your short-term needs. The price of a
major item, such as a fi xed asset or the
purchase of another company, will dictate
your long-term borrowing needs.
You may wish to add a comfortable cush-
ion to your estimate of cash needed, just to
be safe. It is easier to raise all the neces-
sary funds at once than to have to go back
to lenders or investors at a later date and ask
for more. However, it’s best not to overesti-
mate your needs by very much if it means
you have to give up ownership or pay inter-
est for these funds.
Sources of funds
Most small business owners suggest that
you search close to home for funds during
CLATSOP ECONOMIC
DEVELOPMET RESOURCES
We’d like to thank our CEDR Members
for supporting the work we do!
Underwriter ($5000)
Pacific Power
Astoria Brewing Co.
Astoria Vintage Hardware
Baker, Monaghan & Assoc.
Sustaining ($1000)
Bayview Asphalt, Inc.
Astoria-Warrenton Chamber of Commerce
Bowpicker Fish & Chips
Bank of the Pacific
Bridgewater Bistro
Buoy Beer Co. & Pilot House Distilling
Brim’s Farm & Garden
Columbia Memorial Hospital
Bussert, Law, & Associates, LLP
Craft3
Campbell & Popkin, LLC
Georgia-Pacific Wauna Mill
Cannon Beach Chamber of Commerce
Hampton Lumber Mills, Inc
Cannon Beach Vacation Rentals Coherence
Lewis & Clark Bank
Coherence Consulting, LLC
NW Natural Gas Company
Dan Bartlett
Providence Seaside Hospital
Darlene Warren Insurance
Seaside Chamber of Commerce
Dr. Roof
Versa Corp
Emmons Design
Encore Dance Studio LLC
Sponsor ($500)
Englund Marine & Industrial Supply
Bornstein Seafoods
Fishhawk Fisheries
Bree & Associates
Fultano’s Pizza-Astoria
Columbia Bank
Greensmith Landscapes
Columbia Hospitality
Gimre’s Shoes Astoria, Inc.
Fort George Brewery + Public House
Helligso Construction
Hyak Tongue Point LLC
Inn at Seaside
Lewis & Clark Timberlands
KABOBJO Foods Inc.
Advocate ($250)
Knutsen Insurance
High Life Adventures
Lucy’s Books
M & N Workwear
Lum’s Auto Center
Business ($100)
Mai Thai Food LLC
N. Landwehr Financial Planner
Arbor Care Tree Specialists
Ohana Media Group
P & L Johnson Mechanical
Pig N Pancake, Inc.
Pro-Nurse Press
Reach Break Brewing
Rickenbach Construction, Inc.
Rohne’s Brownsmead Island Farm
Seaside Temps
Senator Betsy Johnson
Sundial Travel Services
Ter Har’s Inc
The Astorian
The Sharpening Doc
The Wine Shack
Warrenton Kia
WWC Business Solutions
Supporter ($50)
Cann Lawyers PC
Da Yang Seafood
Linda Dugan Insurance
Public Sector Partners
Clatsop County
Cities: Astoria, Cannon Beach, Gearhart,
Seaside, Warrenton
Clatsop Community College
Business Oregon
SBA - Small Business Administration
Sunset Empire Transportation District
Port of Astoria
the early stages of your busi-
ness. Personal savings, con-
sumer loans from banks and
credit unions, and either invest-
ments or personal loans from
friends and relatives are common
sources of startup capital. After
you have established a profi t-
able track record, you will have
more options available for rais-
ing capital.
ity of your management team
and its track record will be
weighed heavily.
Debt funding
Debt funding is avail-
able from commercial banks,
credit unions, community
development fi nancial insti-
tutions, friends and rela-
tives. Debt funding can take
Kevin Leahy
the form of personal loans
Equity funding
or business loans. In addition,
Equity funding consists of equity from some startup businesses can take advantage
your personal contribution to the company or of operations-related fi nancing.
equity you have raised from outside sources,
Personal loans
or both. When you raise equity from outside
You may incur personal debt for your
sources, you sell a partial interest in your
company. Equity funding can be obtained company by borrowing from a bank on a
from private investors, venture capital fi rms, secured or unsecured basis, by borrowing
friends and relatives. You should be very against the cash value of your life insurance,
careful not to give up control of your com- by obtaining a home equity loan, or by bor-
pany when raising outside equity. The eas- rowing from friends and relatives. Be sure
iest way to ensure that you retain control is that the cost of the loan is reasonable and that
to keep at least 51 percent ownership in the you have a sound plan for repayment.
company.
Business loans
The advantages of equity funding are that
Your business may qualify for a term loan
it has no fi xed costs — you do not have to
make regular interest payments — and higher or a line of credit from a commercial bank
equity levels allow you to leverage your com- or other entity. It is important to the viabil-
pany by negotiating favorable loan terms. ity of your company that you match the type
The major disadvantage of equity funding is of credit you obtain with your needs. Banks
that you may have to sacrifi ce ownership and will want your personal guarantee on any
loan they make to the company. As a gen-
future profi ts to attract investors.
eral rule, banks are typically not interested
Personal Sources
in fi nancing startup businesses, and service
You should invest some personal funds businesses, which off er little or no collateral,
into your business. These funds may come are usually the hardest of all to fi nance.
from your savings, or they may come from
• Term loans are set up on an install-
personal debt that you incur for this purpose.
ment basis with a regular amortization
Consumer loans, such as a home equity loan,
schedule, usually requiring monthly pay-
are common personal sources of equity capi-
ments. Term loans should be used to
tal. Your willingness to place personal assets
fi nance fi xed assets. Term loans are made
at risk will be an important factor when you
on a secured basis, and lenders rarely will
approach investors or lenders about fi nanc-
advance 100% of cost. An advance ratio
ing your business.
— the amount of money a lender will
advance against the value of the collateral
Venture capital
used to secure the loan — in the range of
Venture capitalists are looking for a high
75 to 80% is common for assets such as
return on investment and are therefore will-
real estate and some equipment that have
ing to take risks. Generally, they want an
reasonable liquidation possibilities. An
average 25% return. They do not want to be
advance ratio against other fi xed assets,
involved in the operation of your business,
such as leasehold improvements, will be
but they do want to be kept informed, and
much lower. You may be asked to supple-
they expect to be consulted on major issues.
ment the collateral package with personal
Venture capitalists look for innovative ideas
assets, such as marketable securities or
and are usually interested in companies that
your residence.
market a product rather than a service. When
• Lines of credit are generally extended
venture capitalists make a decision about
See Page 13
whether to invest in your company, the qual-