Starting a Small Business: Frequently Asked Questions

How to Start a Small Business: Your Top Questions, Our Expert Answers

So you’re thinking about starting a small business. The idea of bringing something you’re passionate about to the market is exciting, but there is much to be done before you can open your doors.

Knowing where to start can be a tough task on its own. As bankers, we work with aspiring business owners every day to help answer their questions and help get them on the path to bringing their business goals to life.

Here are some of the most frequently asked questions we get about starting a business and our answers to help you get started:

1. What is the first step in starting a small business?

Paul Daniels: The first step is to create a business plan. Having a written plan will help you determine the tasks you must work on to get your company up and running to increase your likelihood of getting small business startup financing from a bank. Your business plan should include:

• Details on the products and services you will offer
• Financial goals
• Competitor research
• Success factors
• Financial projections

Read More: Why Your Small Business Needs a Business Plan

2. What options do I have for financing a startup?

Jed Jensen: More than half of new small business owners start their company with personal savings. Many also choose to borrow money for the business from family or friends or look for outside investors to finance their startup. Outside investors will likely require an ownership stake in your business. If cash is not available, the next step is to look into bank financing, which can include a Small Business Administration (SBA) loan.

3. How much money do I need to start a business?

Jed Jensen: The amount you need depends on the type of business you’re starting. If your business is online and you don’t need to carry inventory, you may not need a lot of startup money. On the other hand, if you need a brick-and-mortar location, inventory or equipment, your startup costs will be higher. Having a financial projection for your startup included in your business plan will help you determine your capital needs.

4. Should I open a line of credit for my startup business?

Kelly Grefe: If it is possible and necessary, yes. Having a line of credit available can help you in a pinch when you need to cover payroll, pay suppliers for inventory you haven’t sold yet, or cover short-term gaps in cash flow. It’s important to remember that a line of credit is for short-term needs only. You should pay this debt down as early as you are able.

5. What business start-up loan options are available?

Kelly Grefe: The most common small startup business loan is a traditional bank loan. If you have limited cash on hand for a down payment, or if there are unique risks involved with your business, you may need to look at other funding options for startups such as an SBA loan. You can also check for local community resources available in your state. In Nebraska, for example, funds are available through the Rural Enterprise Assistance Project (REAP). To learn about business start up loan options in your area, contact your local Small Business Development Center (SBDC). All their services are free.

6. What is an SBA loan and is it right for my business?

Jed Jensen: These loans are issued by your local bank but guaranteed by the SBA. The main benefits of an SBA loan for small businesses are smaller down payments, less collateral required and longer fixed rates. The best way to find out if an SBA loan is right for you is to talk with an SBA preferred lender like Northwest Bank. 

7. What resources are available to help me learn how to manage my finances?

Paul Daniels: Your first resource is going to be your local banker. They can give you guidance on how to read an income statement and balance sheet, both of which are critical to the success of your business. Your CPA can also help you manage your finances and assist with bookkeeping.

8. How do I create financial projections for my small business plan?

Paul Daniels: The best option is to contact your local Small Business Development Centers (SBDC). They have a template for this and can give you free support in creating financial projections for startups. Your banker can help you determine the most important factors in your business projections, which can also be helpful when you request financing.

9. What collateral will I need for my small business loan?

Kelly Grefe: The most common pieces of collateral for business loans are equipment, inventory, machinery, real estate and accounts payable. Equity in your home can also be considered. The type of collateral you can offer will affect the type of loan you are eligible for.

10. How do I make sure I have the right BAIL (banker, attorney, insurance, lawyer) team?

Jed Jensen: These professionals are going to be key to the success of your business. They can help you avoid issues, help you take advantage of opportunities you may not have noticed, or connect you with other business resources. Good business partners will serve as a sounding board for your ideas, so surround yourself with people you trust.

11. What other individuals or groups should I consider as potential partners for my small business startup?

Paul Daniels: Area economic development centers, your local chamber of commerce and the SBDC can all provide support during the startup phase and as your business matures. They will have tools, resources and industry information you can use to make your business successful.

Get Your Questions Answered Today

Starting a business is no small task, and there is a lot to accomplish before you can open your doors, launch your website or start serving your customers. There are many resources available through the SBA, the SBDC and your local community to help you through every phase of getting your small business off the ground.

If you’re ready to start talking about small business financing options, or if you just need a friendly local face to point you in the right direction, contact a commercial banker from Northwest Bank today.