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The Capital-Equipment Business Plan

May 5, 2004 | Miscellaneous |

Before building a capital-equipment business plan, it is important to understand its basic elements. The rules that apply to the process change frequently; nonetheless, all capital investments are equations balancing risk and benefit. Capital is derived from profits, from open markets such as bonds, and from other loan vehicles. There is tremendous competition for capital within each organization in health care, but there is also competition for patients among facilities (and enhanced competitive ability can be the result of capital-equipment investment).

The available resources are limited, of course, so it is particularly important to make it clear that an imaging department is a revenue source for the parent enterprise. Because imaging produces cash, any case having a positive net present value should be seen in a favorable light. Building the case in favor of an acquisition involves justifying it through the business plan.

PLAN CONTENT

The written plan should outline the reasoning and logic used to arrive at the capital-equipment request. It should cover the objective to be accomplished, why the proposal meets that need, how the objective is related to the mission and/or vision of the organization, and how the proposed acquisition would affect other departments or services within the enterprise. In addition, the management and leadership planned for the acquisition should be specified, and the person who has responsibility for the new service should be named.

Activity that has already taken place related to the proposed acquisition should be summarized, and the current stage of development of any relevant new services should be stated. A broad description of the modality or service (and the availability of personnel with the skills required to offer it) should be provided. How the prospective addition could benefit customers (both clinicians and patients) should be clarified, with particular attention given to the ways in which the proposed service would differ from the current offerings of the institution. Suitable locations for the new equipment should be suggested (with any special site requirements or environmental controls noted). An exit strategy for the service should also be devised.

Accurate data sources, both internal and external, will be needed in determining and validating the market potential of a proposed acquisition. Any entry barriers that exist in the marketplace should be examined. The plan should incorporate a review of the effects of regulation, economic influences, seasonality of demand for the service or modality, and the most advantageous timing for its introduction. Historical volumes, state and local trends, and technological influences should be outlined.

The pro forma section of the business plan should be a list of all operative assumptions. This is especially important because those who best understand the need for new equipment are unlikely to be the individuals who will decide whether to acquire it. By defining all assumptions clearly, the plan’s writers can ensure that all readers will understand the information presented, despite variations in their training and experience. Readers should, of course, be provided with clear, concise, and valid data.

The assumptions covered by the pro forma section should be the standard models and basic parts involved, the gross and net revenues expected, the variable and fixed expenses predicted, any renovations needed, the cost of suitable facilities, depreciation, the cost of capital, and the modified internal rate of return. In addition, starting dates for the project, applicable tax rates, average inventory, and volume forecasts should be noted.

Not every capital-equipment acquisition calls for a business plan, but one is likely to be required for any proposed purchase costing more than $250,000.

The level of approval needed may be based on the total cost of the acquisition, with requirements differing among institutions. Generally, the vice president who oversees the department can approve smaller purchases (perhaps those costing less than $25,000) alone, but the COO may need to approve larger acquisitions. For the largest outlays (typically those of $1 million or more), the approval of the CFO, CEO, and trustees may be required. The minimum expenditure for which a business plan is needed may be as low as $500 or as high as $5,000. Approval due dates for each year’s capital-equipment expenditures will also vary and must be kept in mind. These dates often precede operating-budget deadlines.

Those whose approval will be needed for the proposed acquisition may approach capital equipment from several different angles. The business plan should answer questions specific to each of these perspectives. For example, a vice president may have the best understanding of the department and how it operates, while the COO will be most interested in the interdepartmental ramifications of the acquisition. The CFO will scrutinize positive and negative financial effects to be expected. The CEO and board of trustees will be concerned about strategy, along with the acquisition’s alignment with the mission and vision of the enterprise.

The business plan will address all of these concerns, but each presentation of the plan will vary to reflect the primary interests of the audience. The presenters should not attempt to demonstrate how hard they have worked to prepare the plan; instead, they should focus on getting approval to proceed to the next level of the acquisition process. In a large organization, it is not uncommon to make the presentation more concise as it rises through the executive hierarchy.

SUMMARY AND PROPOSAL

The most concise written form that the proposal will take is the executive summary, which should be one to two pages long. Although this appears at the beginning of every copy of the plan, it is written last (in order to incorporate the most important points from every completed section of the plan). It is especially vital that all significant information be summarized here because this is, in many organizations, the only part of the plan that every recipient will read in its entirety. Reading the executive summary alone should provide an overview of what is being proposed, and by whom; where and when it will be implemented; why it is necessary; its financial characteristics; and how it is expected to affect the organization.

A section describing the proposed acquisition (and citing credible information sources) should cover current and projected population demographics, market demand, competing hospitals and joint ventures, market share considered by service line as well as modality, regulatory issues (including any applicable certificates of need), payor trends such as relevant reimbursement levels, productivity, and the life expectancy of the technology. The department’s referral sources should be described, as should any backlogs or other delays that may be causing referral losses.

CURRENT CIRCUMSTANCES

An examination of the current state of the affected service(s) is needed, and that state should be compared with applicable benchmarks to provide a picture of where the facility now stands.

Carrying out an analysis of the strengths and weaknesses of the organization and the opportunities and threats that it faces (a SWOT evaluation) will often be illuminating. The SWOT matrix, usually displayed on four or six text panels, can point out what needs to be done, and can be helpful in putting problems into perspective. It is a distilled version of the present situation, containing only the most critical points in a concise format, sometimes color coded to enhance clarity. It may also prove enlightening to conduct the SWOT exercise for the organization’s competitors. A SWOT analysis forces an objective analysis of the department and organization’s position in the marketplace. Simultaneously, an effective SWOT analysis will help determine in which areas the institution is succeeding, allowing it to justify the allocation of resources in ways that maintain any dominant positions that it may have.

As strengths, the SWOT matrix should list advantages, what the entity does well, and the resources available to it. Weaknesses include areas needing improvement, what the facility lacks, and activities performed poorly. Depending on the situation, these may be weaknesses or strengths: location, facilities, equipment, staffing, organization, and leadership.

Opportunities listed may be interesting trends and new business prospects. Threats are obstacles, bad debt or cash-flow problems, and weaknesses that seriously threaten the enterprise. Changing technology and competitors’ activities can be opportunities or threats, as can changes in government policy, social patterns, population profiles, and lifestyles.

FINANCIAL ANALYSIS

The financial analysis (see Figures 1a and 1b) summarizes inpatient and outpatient revenues, considered separately if both apply; the capital expense (equipment, building/renovation, and depreciation); and an operating budget for the acquisition. It also consists of financial statements such as a balance sheet; an income statement (including gross patient revenues, contractual allowances, bad debt and charity, salaries, supplies, total operating expenses, direct contribution margin, indirect variables, total inpatient and outpatient volumes, and total contribution margin); and a cash-flow statement. These are accompanied by a breakeven analysis, key ratio projections, and summaries of relevant financial resources (compiled by the CFO) and financial strategy (determined by the CEO and CFO). Possible added costs, such as the need for travelers to augment existing staff, should be discussed here. How the project is expected to create new revenue streams or protect current cash flows should be specified.

After the financial analysis is complete, the plan should note the level of support for the project expected from patients and referring clinicians and should emphasize why the acquisition is needed now (and should not be held for a later capital budget). Because capital is limited, why this project deserves funding more than competing proposals should be stated. In the final summary, the authors should indicate the benefits of the proposed acquisition that will be gained outside the radiology department, both within and outside the enterprise.

ATTACHMENTS

The final section of the capital-equipment business plan is a series of attachments corroborating the evaluation made in the body of the document. The attachments should include construction quotes, equipment quotes, ramp-up requirements, the pro forma, a timeline, a list of regulatory deadlines, references to data sources cited in the text, and letters of support for the project.

Another helpful attachment is a simple Gantt chart (see Figure 2). This is a useful overview for those who want to see each step of the project quickly, without reading the entire business plan. Constructed as a bar graph using a horizontal time scale, the chart should show the expected duration, cost, and person responsible for each step in the acquisition and implementation processes.

Richard S. Helsper, RT, MBA, is vice president of operations, Clarian Health Partners, Indianapolis. This article has been excerpted from Creating a Capital Equipment Business Plan, which he presented at the 31st annual meeting of the American Healthcare Radiology Administrators on August 12, 2003, in Anaheim, Calif.

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Capital Equipment Assets Accountant Qualifications, Education, Role Keeping Accounts

Capital Equipment Assets Accountant's Education, Qualifications

What is Capital Equipment?

Capital equipment assets earn their keep by producing returns.

B usiness owners acquire costly capital equipment for one purpose: to operate the business and earn income. As a result, they naturally think of capital asset acquisition as a form of business investment , which means they expect these assets to deliver returns that outweigh their costs. Capital equipment that sits idle for long periods, or otherwise turns unproductive, becomes a target for replacement or liquidation.

Define Capital Equipment

Capital equipment items typically include such things as machine tools, vehicles, construction equipment, instruments, store furnishings, and networking and computing equipment—to name a few.

Capital equipment includes long lasting assets

Owners expect capital equipment to produce operating benefits over a long time, usually several years or more. Accountants commonly classify these items as capital assets. And, they track asset earning performance year-to-year with financial metrics such as return on total assets ( ROA ) and Total Asset Turnover.

Most firms establish criteria for deciding which items they acquire are capital items, and which are not. These criteria result partly from local tax laws, but they also reflect accounting policy choices by the firm's management. These criteria typically specify that an item qualifies as a capital item if it meets at least three conditions. Capital items:

Have a minimum useful service life or economic life (e.g., one year or more).
Have an acquisition cost above a certain threshold (e.g., $1,000 or more).
Contribute value to the firm's business performance.

Capital Equipment Explained in Context

Business firms usually handle capital and non-capital items differently in several areas:

The acquisition process.
Asset management and asset performance measures.
Valuing and reporting.

This article further explains capital equipment decisions and accounting in these areas, in context with similar concepts from accounting and asset management.

Define Capital Equipment .
How does a business acquire capital items?
How does a business manage and evaluate capital items?
How does a business value and report capital items?

How Does a Business Manage Capital Items?

Some firms establish a lifecycle management process for managing capital assets. The process purpose is to maximize asset contributions to the business while minimizing asset lifecycle costs. The process typically expects each asset class to have a productive economic life, running for a certain number of years. Assets are within their "economic lives" when they return more value to owners than they cost to operate.

Local asset managers and tax authorities usually designate an economic life they expect for individual asset classes—vehicles, factory machines, office furniture, or store equipment, for instance. Owners expect assets to earn more in their lives than it costs to acquire, maintain, and operate them. When asset costs exceed asset returns, the asset is beyond its "economic life."

Business firms expect their capital equipment assets to justify their acquisition and existence throughout their economic life. Managers of capital equipment usually assess asset performance periodically, with profitability metrics and investment metrics such as return on investment (ROI) , return on assets (ROA), total asset turnover, and return on capital employed (ROCE). Under-performing assets may become targets for efforts designed to improve asset utilization. Or, they may become targets for replacement or liquidation. For more on managing assets and measuring asset performance, see Asset .

Valuing and Reporting Capital Items

Firms value and report capital equipment assets such as factory machines on the Balance Sheet differently than they treat noncapital assets (such as accounts receivable). For instance, capital equipment assets, in particular, have a reported book value on the Balance Sheet that can change during asset life. Book value changes may result from:

Accumulating and Charging Depreciation expense against asset book value.
Value adjustments that local tax laws and Generally Accepted Accounting Principles (GAAP) permit or require.

Where Do Capital Assets Appear on the Balance Sheet?

Balance Sheet Structure starts with three sections, all of which have a place in the Balance Sheet Equation:

Assets = Liabilities + Equities

Capital assets and their book values may appear on the Balance Sheet—not surprisingly—in the Assets section.

Capital equipment assets may appear on the under Balance Sheet assets in a category of their own, Capital Assets.
However, the same assets may also list in asset account categories such as Tangible Asset , Long-Term Assets , or Property Plant & Equipment .
Alternatively, the firm's accountants may carry capital equipment under asset category names for the nature of the asset, such as Computer Equipment , Manufacturing Equipment , or Store Assets .

For more on asset valuing and reporting see Asset .

Capital Planning

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on July 12, 2023

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Table of contents, what is capital planning.

Capital planning is a critical process that businesses undertake to allocate financial resources to long-term investments and projects, such as acquiring new equipment, launching new products, or expanding operations.

The primary aim of capital planning is to ensure that a company's investments generate the highest possible return, contribute to its long-term growth and success, and minimize financial risks.

A well-designed capital plan can help a company identify the most beneficial investment opportunities, create a balanced portfolio of projects, and allocate resources strategically.

Effective capital planning is crucial for a business's long-term success and financial stability.

It allows organizations to make strategic decisions about where to invest resources to achieve their growth objectives, maximize shareholder value, and maintain a competitive edge in the marketplace.

By carefully evaluating potential investments, companies can ensure that they are putting their money into projects that align with their overall strategy and have the potential to deliver significant returns.

Furthermore, capital planning helps businesses minimize investment risks by identifying potential threats and developing strategies to mitigate them.

Capital Planning Process

Identifying capital needs.

This step involves assessing a company’s current assets , forecasting future growth, and analyzing industry trends.

It includes evaluating the organization's existing infrastructure, equipment, and technology to determine if they are adequate to meet its short and long-term objectives.

Additionally, companies should assess their growth potential by analyzing market trends, customer demand, and competition to identify areas where investment may be required.

Forecasting future growth is critical to identifying capital needs, as it provides valuable insights into the company's potential revenue streams and resource requirements.

Companies should utilize historical data, market research, and industry analysis to create accurate growth projections.

Understanding industry trends is essential for identifying opportunities for investment and potential challenges that may impact the organization's financial performance.

Evaluating Capital Projects

Evaluating a company’s potential capital projects is done to determine their financial feasibility, strategic alignment, and associated risks. Financial feasibility refers to the project's ability to generate a return on investment (ROI) that exceeds its cost of capital .

This can be assessed using various capital budgeting techniques , such as net present value (NPV) , internal rate of return (IRR) , and payback period.

Strategic alignment is essential in the evaluation process, as it ensures that the proposed project aligns with the company's overall business strategy and objectives.

This may involve analyzing the project's potential impact on market share , competitive positioning, and long-term growth potential.

Risk assessment is another critical aspect of project evaluation, as it involves identifying potential risks associated with the investment and developing strategies to mitigate them.

Prioritizing Capital Investments

This involves ranking projects according to their potential for financial return, considering factors such as projected cash flows, payback period, and NPV. Balancing risk and reward is also a critical aspect of prioritizing investments.

Companies should aim to create a balanced portfolio of projects that offers an optimal mix of potential returns and risk exposure.

Resource availability is another important factor to consider when prioritizing capital investments.

Companies must ensure they have the financial, human, and technological resources to support the successful implementation of their chosen projects. This may require reallocating resources from other business areas or seeking external financing to fund the investment.

Budgeting Techniques for Capital Planning

Payback period.

The payback period is a simple capital budgeting technique that calculates the amount of time it takes for an investment to recoup its initial cost through cash inflows.

It is calculated by dividing the initial investment cost by the annual cash inflow generated by the project.

The payback period is useful for comparing investment options with similar risk profiles , as it provides a straightforward measure of how quickly an investment will start generating positive returns.

However, the payback period must account for the time value of money or cash flows generated after the initial investment has been recouped, which may limit its usefulness in evaluating long-term projects.

Net Present Value

NPV is a more sophisticated capital budgeting technique that accounts for the time value of money by discounting future cash flows to their present value.

The NPV is calculated by subtracting the present value of cash outflows (initial investment) from the present value of cash inflows generated by the project over its life.

A positive NPV indicates that the project is expected to generate a return greater than the cost of capital, making it a potentially worthwhile investment.

In contrast, a negative NPV suggests that the project's returns are unlikely to cover its costs. NPV is widely used by businesses to compare investment opportunities and determine their financial viability.

Internal Rate of Return

The IRR calculates the discount rate at which the net present value of a project's cash flows becomes zero. In other words, the IRR represents the annualized rate of return at which the investment breaks even.

The IRR can be used to compare the profitability of different investment options, with higher IRRs generally indicating more attractive opportunities.

It is important to note that the IRR assumes that all future cash flows are reinvested at the same rate, which may only sometimes be the case in practice.

Profitability Index (PI)

The profitability index measures the relative profitability of an investment by dividing the present value of its future cash flows by the initial investment cost.

A PI greater than 1 indicates that the project is expected to generate a positive net present value. In contrast, a PI of less than 1 suggests that the investment may not be financially viable.

The PI is useful for comparing the relative profitability of different investment options, as it takes into account both the size of the investment and the potential returns.

Modified Internal Rate of Return (MIRR)

The modified internal rate of return (MIRR) is a variation of the IRR that addresses some of its limitations by considering the cost of capital and the reinvestment rate of cash flows separately.

The MIRR calculates the annualized rate of return at which the present value of a project's cash inflows, discounted at the reinvestment rate, equals the present value of its cash outflows, discounted at the cost of capital.

The MIRR provides a more realistic measure of a project's profitability, accounting for the actual reinvestment opportunities available to the company.

Budgeting Techniques for Capital Planning

Risk Management in Capital Planning

Risk identification and assessment.

Risk management is a critical aspect of capital planning, as it helps businesses identify and assess potential risks associated with their investments.

This involves analyzing various factors, such as market conditions, economic trends, competitive dynamics, and regulatory developments, to determine the likelihood and potential impact of various risks on the company's financial performance.

Risk assessment should be an ongoing process, as new risks may emerge over time, or existing risks may change in magnitude or probability.

Risk Mitigation Strategies

Once risks have been identified and assessed, businesses should develop strategies to mitigate their potential impact on capital investments. This can involve a range of approaches, such as diversification, hedging , and insurance.

Diversification is spreading investments across a range of projects or asset classes to reduce the portfolio's overall risk exposure. Hedging involves using financial instruments, such as options or futures contracts , to offset potential losses from an investment.

Insurance can be used to transfer certain types of risk to a third party, such as property and casualty insurers or credit risk insurers, in exchange for a premium.

Contingency Planning

Contingency planning is an essential component of risk management. It involves developing alternative plans or strategies to address potential risks that may materialize during a capital investment.

This can include identifying backup suppliers or contractors, establishing alternative financing arrangements, or developing plans to scale back or modify the project if necessary.

Contingency planning helps businesses to be better prepared for unexpected events and to minimize the potential impact of risks on their capital investments.

Capital Planning Best Practices

Involving stakeholders.

One of the best practices in capital planning is involving all relevant stakeholders in the process. This includes the company's management and financial teams and employees, shareholders, customers, and suppliers.

By engaging stakeholders in the planning process, businesses can gain valuable insights, identify potential risks and opportunities, and build a shared understanding of the company's strategic objectives and investment priorities.

Aligning With Overall Business Strategy

Capital planning should be closely aligned with a company's overall business strategy, ensuring investments are directed toward projects supporting the organization's long-term goals and objectives.

To achieve this alignment, businesses should regularly review and update their strategic plans and ensure that capital planning is integral to their strategic decision-making process.

Regularly Reviewing and Updating the Plan

Capital planning is an ongoing process that requires regular review and updating to reflect changes in the company's financial position, market conditions, and strategic priorities.

By periodically revisiting their capital plan, businesses can ensure that their investment decisions remain aligned with their objectives, respond to new opportunities or risks, and adapt to changing circumstances.

Ensuring Transparency and Accountability

Transparency and accountability are essential for effective capital planning, as they help build trust among stakeholders and ensure that investment decisions are made in the company's best interests.

Businesses should establish clear processes for evaluating and prioritizing capital projects, involve stakeholders in decision-making, and regularly report on the progress and outcomes of their investments.

Capital planning is an essential process that drives a company's long-term growth and financial success.

It involves identifying capital needs by assessing current assets and forecasting future growth, evaluating potential investments using capital budgeting techniques like NPV and IRR, and prioritizing projects based on expected returns , risks, and resource availability.

Effective capital planning also incorporates risk management strategies, such as risk identification, mitigation, and contingency planning, to minimize potential investment threats.

Adhering to best practices, such as involving stakeholders, aligning capital planning with overall business strategy, regularly reviewing and updating plans, and ensuring transparency and accountability, further enhances the effectiveness of capital planning.

By adopting a comprehensive and strategic approach to capital planning, businesses can maximize shareholder value and secure long-term success in a competitive market.

Capital Planning FAQs

What is capital planning.

Capital planning is the process of determining how an organization will allocate and invest its financial resources to fund long-term projects, acquisitions, or expansions.

Why is capital planning important?

Capital planning is essential because it helps organizations prioritize and make informed decisions about allocating funds to projects that will generate the most significant returns or strategic advantages.

How does capital planning support financial stability?

Capital planning helps organizations maintain financial stability by ensuring that sufficient funds are available for strategic investments, managing debt and equity ratios, and minimizing the risk of financial distress.

What role does risk assessment play in capital planning?

Risk assessment is a crucial component of capital planning as it helps identify potential risks associated with investment projects. By evaluating risks, organizations can make informed decisions, develop mitigation strategies, and allocate resources more effectively.

How often should capital planning be reviewed and updated?

Capital planning should be reviewed and updated regularly to account for changes in market conditions, business priorities, and financial goals. Typically, organizations conduct annual or periodic reviews to ensure the relevance and accuracy of their capital plans.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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Business Plan Example and Template

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What is a Business Plan?

A business plan is a document that contains the operational and financial plan of a business, and details how its objectives will be achieved. It serves as a road map for the business and can be used when pitching investors or financial institutions for debt or equity financing .

Business Plan - Document with the words Business Plan on the title

A business plan should follow a standard format and contain all the important business plan elements. Typically, it should present whatever information an investor or financial institution expects to see before providing financing to a business.

Contents of a Business Plan

A business plan should be structured in a way that it contains all the important information that investors are looking for. Here are the main sections of a business plan:

1. Title Page

The title page captures the legal information of the business, which includes the registered business name, physical address, phone number, email address, date, and the company logo.

2. Executive Summary

The executive summary is the most important section because it is the first section that investors and bankers see when they open the business plan. It provides a summary of the entire business plan. It should be written last to ensure that you don’t leave any details out. It must be short and to the point, and it should capture the reader’s attention. The executive summary should not exceed two pages.

3. Industry Overview

The industry overview section provides information about the specific industry that the business operates in. Some of the information provided in this section includes major competitors, industry trends, and estimated revenues. It also shows the company’s position in the industry and how it will compete in the market against other major players.

4. Market Analysis and Competition

The market analysis section details the target market for the company’s product offerings. This section confirms that the company understands the market and that it has already analyzed the existing market to determine that there is adequate demand to support its proposed business model.

Market analysis includes information about the target market’s demographics , geographical location, consumer behavior, and market needs. The company can present numbers and sources to give an overview of the target market size.

A business can choose to consolidate the market analysis and competition analysis into one section or present them as two separate sections.

5. Sales and Marketing Plan

The sales and marketing plan details how the company plans to sell its products to the target market. It attempts to present the business’s unique selling proposition and the channels it will use to sell its goods and services. It details the company’s advertising and promotion activities, pricing strategy, sales and distribution methods, and after-sales support.

6. Management Plan

The management plan provides an outline of the company’s legal structure, its management team, and internal and external human resource requirements. It should list the number of employees that will be needed and the remuneration to be paid to each of the employees.

Any external professionals, such as lawyers, valuers, architects, and consultants, that the company will need should also be included. If the company intends to use the business plan to source funding from investors, it should list the members of the executive team, as well as the members of the advisory board.

7. Operating Plan

The operating plan provides an overview of the company’s physical requirements, such as office space, machinery, labor, supplies, and inventory . For a business that requires custom warehouses and specialized equipment, the operating plan will be more detailed, as compared to, say, a home-based consulting business. If the business plan is for a manufacturing company, it will include information on raw material requirements and the supply chain.

8. Financial Plan

The financial plan is an important section that will often determine whether the business will obtain required financing from financial institutions, investors, or venture capitalists. It should demonstrate that the proposed business is viable and will return enough revenues to be able to meet its financial obligations. Some of the information contained in the financial plan includes a projected income statement , balance sheet, and cash flow.

9. Appendices and Exhibits

The appendices and exhibits part is the last section of a business plan. It includes any additional information that banks and investors may be interested in or that adds credibility to the business. Some of the information that may be included in the appendices section includes office/building plans, detailed market research , products/services offering information, marketing brochures, and credit histories of the promoters.

Business Plan Template

Here is a basic template that any business can use when developing its business plan:

Section 1: Executive Summary

Present the company’s mission.
Describe the company’s product and/or service offerings.
Give a summary of the target market and its demographics.
Summarize the industry competition and how the company will capture a share of the available market.
Give a summary of the operational plan, such as inventory, office and labor, and equipment requirements.

Section 2: Industry Overview

Describe the company’s position in the industry.
Describe the existing competition and the major players in the industry.
Provide information about the industry that the business will operate in, estimated revenues, industry trends, government influences, as well as the demographics of the target market.

Section 3: Market Analysis and Competition

Define your target market, their needs, and their geographical location.
Describe the size of the market, the units of the company’s products that potential customers may buy, and the market changes that may occur due to overall economic changes.
Give an overview of the estimated sales volume vis-à-vis what competitors sell.
Give a plan on how the company plans to combat the existing competition to gain and retain market share.

Section 4: Sales and Marketing Plan

Describe the products that the company will offer for sale and its unique selling proposition.
List the different advertising platforms that the business will use to get its message to customers.
Describe how the business plans to price its products in a way that allows it to make a profit.
Give details on how the company’s products will be distributed to the target market and the shipping method.

Section 5: Management Plan

Describe the organizational structure of the company.
List the owners of the company and their ownership percentages.
List the key executives, their roles, and remuneration.
List any internal and external professionals that the company plans to hire, and how they will be compensated.
Include a list of the members of the advisory board, if available.

Section 6: Operating Plan

Describe the location of the business, including office and warehouse requirements.
Describe the labor requirement of the company. Outline the number of staff that the company needs, their roles, skills training needed, and employee tenures (full-time or part-time).
Describe the manufacturing process, and the time it will take to produce one unit of a product.
Describe the equipment and machinery requirements, and if the company will lease or purchase equipment and machinery, and the related costs that the company estimates it will incur.
Provide a list of raw material requirements, how they will be sourced, and the main suppliers that will supply the required inputs.

Section 7: Financial Plan

Describe the financial projections of the company, by including the projected income statement, projected cash flow statement, and the balance sheet projection.

Section 8: Appendices and Exhibits

Quotes of building and machinery leases
Proposed office and warehouse plan
Market research and a summary of the target market
Credit information of the owners
List of product and/or services

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Baker University
Subject Guides

Writing a Business Plan - Financials

Capital Equipment
Introduction
Funding Sources
Start-up Costs
Financial Issues
Equipment used to manufacture a product, provide a service, or sell, store, and deliver merchandise
NOT equipment used in the normal course of business, but equipment one will use and wear out as one does business.
Does not include items expected to be replaced annually or more frequently.

Where to obtain capital equipment

The Internet, in general
Vendor catalogs
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Capital Equipment

By Entrepreneur Staff

Capital Equipment Definition:

Equipment that you use to manufacture a product, provide a service or use to sell, store and deliver merchandise. This equipment has an extended life so that it is properly regarded as a fixed asset.

When deciding when to purchase and register capital equipment on your books, there are two lines of thinking. The first is to purchase and install the needed equipment at a point during the year where additional volume warrants the expenditure, thereby assuring sufficient cash flow to handle the additional debt service or the outright purchase of the equipment. The second method is to have the equipment purchased and installed at the beginning of the business year or quarter closest to the time when you'll actually need the equipment, allowing time for training and working out bugs before the equipment is placed into full production.

The avenue you choose depends on your cash flow. If you can service additional debt or purchase the equipment from operating expenses, then the latter method works best. If your cash flow is tight, then choose the former method. Either way, capital equipment costs are accounted for under the heading "capital."

More from Operations

Fulfillment.

The process of receiving, packaging and shipping orders for goods

The process of bringing goods from one country for the purpose of reselling them in another country

Depreciation

An expense item set up to express the diminishing life expectancy and value of any equipment (including vehicles). Depreciation is set up over a fixed period of time based on current tax regulation. Items fully depreciated are no longer carried as assets on the company books.

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What is capital equipment? Definition and meaning

Capital equipment refers to items that are not permanently attached to buildings or grounds (freestanding) and cost more than $5,000 net of sales tax, freight and installation costs. It must have a useful life of at least one year and is not consumed in the normal course of business.

If the item costs less than $5,000, is freestanding and has a use life of one year or more, it is generally known as non-capital equipment.

Capital equipment is used to manufacture a product or provide a service. It is used to sell, store and deliver merchandise ( the term ‘merchandise has several meanings – in this context it means ‘goods’ or ‘products’).

Generally classified by accountants as capital assets, capital equipment provides operating benefits over a sustained period.

According to ft.com/lexicon, capital equipment is :

“Machinery, tools, vehicles, etc. used to generate a finished product or service.”

Capital equipment may include items acquired in several different ways, which can be bought, leased or donated.

Some items, such as land or software, may meet the general requirements but tend to be excluded from the category.

Capital equipment definition varies

Items that are classed as capital equipment vary from business to business and industry to industry. In colleges and schools, it may include microscopes, scanning machines and computers. In the mining industry, it could include sifters, drills, or underground trains.

The acquisition of capital equipment items is generally planned, managed and financed on an organization-wide basis. Choices are generally decided by a committee, which receives capital funding requests and prioritizes them.

Marty Schmidt writes in an article published by Solution Matrix Limited:

“Authorization for acquisition and funding is granted for highest priority proposals first, continuing through lower priority proposals, until the capital spending ceiling for the current capital budgeting cycle is reached.”

“Acquisitions of non-capital items, by contrast, is typically initiated and authorized by many different individual managers at different levels.”

Video – Capital Equipment

In this video, James Kilgour, a capital equipment specialist, talks about his job. He selects equipment for specific veterinary practices. He says his service saves clients a great deal of time.

Read The 2020 Hot Indications List

How can companies determine where to focus as they develop their pipelines and determine new growth opportunities? Kx Advisors’ 2020 Hot Indications List can help. In our 6th annual analysis of global R&D investment, our experts identified the top indications for industry focus.

Six Considerations to Evolve Your Capital Equipment Pricing Strategy

Six Considerations t o Evolve Y our Capital Equipment Pricing Strategy

Capital equipment pricing models .

As the world of capital equipment changes rapidly , manufacturers must find innovative ways to stay competitive. With new technology and enhancements, suc h as software upgrades and digital and connectivity solutions, as a crucial part of the value proposition of capital equipment, manufacturers can offer alternative pricing solutions to provide greater customer customization. Flexible pricing is especially pertinent for higher – value equipment on the market , such as AI -assisted imaging equipment, robotically – assisted surgical equipment , and advanced monitoring equipment. With the shift in procedures from hospitals to smaller office-based labs and ambulatory surgical centers , manufacturers can also capture new business opportunities with these alternative models.

New Pricing Models for Capital Equipment

The traditional pricing models offered three options: an upfront purchase with each component sold separately, a consumable upcharge model, or a leasing model . A combination of new technology and more customized pricing improves a manufacturer’s value proposition. With new pricing models, manufacturers can boost revenues, increase penetration, and build long-term relationships with clients by offering greater flexibility.

These new models include:

Risk-based or outcomes-based model: Risk-sharing pricing strategies factor in a cost savings component from any operational efficiencies gained and clinical outcomes achieved in this model
Recurring revenue stream model : Instead of the traditional transfer of ownership model, manufacturers offer a subscription with a recurring fee . The purchaser or user is granted access to a set number of capital equipment devices for the subscription period . This fee may or may not include unlimited usage in the number of consumables
Patient usage pricing model : Based on patient usage, manufacturers can offer a per-patient fee for the equipment over a period of time with this model
E nterprise – level model : This model bundles the customer ‘ s capital equipment needs across entire care unit s and multiple hospitals within the networ k . The bundle would normally include both equipment and services components . Payment schedules could be yearly or bi- yearly

Six Considerations for Identifying the Right Pricing Model

With so many pricing models emerging, it can be challenging to identify the right one for your product offerings. As your organization moves towards a new pricing model, like the ones above, there are six key considerations to keep in mind to identify the most effective model for your team:

Set clear objectives: With an identified goal, your organization can better evaluate the potential models. Objectives can include increasing revenue, expanding the adoption rate, smoothing revenue, maximizing profit, and expanding account use of a suite of products and services. For example, if a manufacturer’s goal is to increase the use of a full suite of products, the recurring revenue stream model may be a better fit for their goal
Identify the value drivers of your product: Drivers, such as clinical efficacy, payment model, ROI, and the strength of existing relationships, impact pricing and the manufacturer’s ability to customize the pricing model
Determine the decision-maker : Sometimes the end-user who makes the purchase decision is different from the purchaser who chooses the pricing model. Broadly, th ere are three types of capital equipment buyers : economic , clinical , and operational. The economic buyer’s sole focus is to improve their organization’s profit. In contrast, the clinical buyer is more focused on the clinical value of the product offerings , like patient outcomes or improved patient experience . Operational buyers typically focus on other factors such as department work flow , device integration with key clinical systems, or maintenance and uptime . Knowing the level s of influence and priorities for each buyer type will help determines which pricing model t o offer . If the buy ing decision is more committee-based , the pricing model will need to consider all stakeholder needs
Consider the impact on clients’ budgets: Pricing structure might impact where a client categorizes a purchase (i.e., capital expenses or operational expenses). Often capital expenses will fall under the hospital’s capital budget while operational expenses fall under the department’s budget , which may sway some clinicians towards a capital expense model
Understand clients’ financial health: Innovative recurring pricing models might be a better fit for clients working under capital restraints. This consideration is crucial overseas, especially in countries where COVID-19 has ravaged hospitals, which would seek to reduce the upfront cost of purchasing capital equipment
Establish benchmarking metrics: This consideration is the most important for risk-based or outcomes-based pricing, as identifying the equipment’s impact on patient outcomes or operational efficiencies dictates price. These metrics could include hospital readmission rates or the number of adverse events related to the equipment. When determining these benchmarks manufacturers must ensure they are measurable and that clients have the right infrastructure system in place to measure them

How Kx Can Help You

With our expertise in pricing strategy , Kx Advisors can guide your team through developing an optimized capital equipment business model. Our team of healthcare experts will help you evaluate your base, identify your customer segments, effectively appeal to your ideal customer, and position your organization for long-term success.

Contact Our Team Today

Equipment Financing

Guide to securing equipment capital for startups.

March 4, 2024

Starting a new business is an exciting journey, but it’s also filled with challenges, especially when it comes to securing the necessary equipment. You know that having the right tools is crucial for success, but the financial hurdle can seem daunting. Don’t worry, you’re not alone in this.

Securing equipment capital for your new enterprise is a critical step that can define the trajectory of your business. Whether you’re in manufacturing, tech, or any industry requiring substantial equipment investment, understanding your financing options is key. Let’s dive into how you can navigate this process with confidence, ensuring your startup is well-equipped to thrive in today’s competitive market.

Understanding the Importance of Equipment Capital

As you venture into the entrepreneurial world, it becomes crucial to grasp the significance of equipment capital. This is not just about buying the latest gadgets or machinery; it’s about investing in the tools that will allow your business to function effectively and compete in the crowded marketplace. Without the right equipment, your operations may suffer, leading to inefficiencies and lost opportunities.

Equipment capital is more than a financial commitment; it’s a testament to your belief in the business’s potential. It shows that you’re ready to put down roots and make necessary investments for growth. Whether it’s manufacturing machinery, IT infrastructure, or office fixtures, each piece plays a pivotal role in your company’s success. The right equipment can enhance productivity, improve product quality, and even open up new avenues for innovation and development.

Securing this capital might feel daunting, but understanding its importance helps in making informed decisions. Here are a few points highlighting why equipment capital is indispensable for new enterprises:

Boosts Operational Efficiency : Streamlined operations are crucial for a startup’s survival. With the right equipment, you can automate processes, reduce manual errors, and speed up production or service delivery.
Supports Business Growth : As your business expands, your needs will evolve. Investing in scalable solutions from the start can save you from future expenses and disruptions.
Enhances Competitive Edge : In an era where technology evolves rapidly, having the latest equipment can give you a significant advantage over competitors who may be reluctant to invest.

Understanding the value of equipment capital is the first step towards securing your business’s future. By prioritizing this, you’re not just preparing for the challenges ahead but also laying the foundation for sustainable growth and success. Remember, your decision today affects your business’s trajectory tomorrow, so approach equipment capital with the seriousness it deserves.

Assessing Your Equipment Needs

Before diving into the financial aspects of securing equipment capital, it’s crucial to thoroughly assess your equipment needs. This step is foundational in ensuring that your investments directly contribute to your business’s growth and efficiency. The process involves careful consideration of both current and future requirements, enabling you to make informed decisions that align with your business objectives.

Start by Identifying Essential Equipment vital for your operation’s day-to-day functionality. Differentiate between what’s necessary and what could be considered a luxury or non-essential. This distinction will help in prioritizing investments and ensuring that your capital is focused on tools that offer the highest return on investment (ROI).

Forecast Future Growth to understand how your equipment needs might evolve. Anticipating changes in demand or expansions in your business can inform your decisions on whether to opt for scalable solutions or equipment that serves immediate needs. This foresight can save you from future costs associated with upgrading or replacing insufficient equipment.

Conduct a Cost-Benefit Analysis for each piece of equipment you’re considering. This involves weighing the costs against the benefits it will bring to your business, including factors like efficiency improvements, potential for increased revenue, and its impact on your competitive edge. Tools that offer significant benefits at a reasonable cost should be prioritized.

Lastly, explore Flexible Financing Options . Recognize that purchasing equipment outright isn’t the only path to securing the tools your business needs. Leasing, loans, and equipment financing can offer flexible payment terms that align better with your cash flow, especially for startups and growing businesses.

By methodically assessing your equipment needs, you ensure that every dollar spent enhances your operational capacity and supports your business’s growth trajectory. Remember, the goal is to invest smartly, focusing on equipment that brings the most value to your enterprise.

Exploring Financing Options

When you’re seeking ways to secure equipment capital for your new enterprise, understanding the various financing options available is crucial. Different methods of financing present unique benefits and considerations, tailoring to the needs of diverse businesses.

Traditional Bank Loans are often the first avenue entrepreneurs think of. They come with competitive interest rates and long repayment terms. However, the approval process can be rigorous, demanding a strong credit history and substantial collateral. It’s imperative to have your financial statements in order, alongside a solid business plan, to increase your chances of approval.

Equipment Leasing offers an alternative that can ease the initial financial burden. Under a lease, you use the equipment for a predetermined period, paying a monthly fee. This option doesn’t require a hefty upfront payment, making it accessible for startups. Plus, it offers flexibility; you can upgrade to newer technology easily without the hassle of selling outdated equipment. Yet, it’s essential to read the terms carefully, as total leasing costs might exceed the price of purchasing the equipment outright.

For those looking for more innovative solutions, Crowdfunding and Peer-to-Peer Lending platforms have emerged as viable options. These methods allow businesses to raise funds directly from individual investors, bypassing traditional financial institutions. While they offer quicker access to capital and less stringent eligibility criteria, they also require compelling pitches and may come with higher interest rates or fees.

Lastly, consider exploring Government Grants and Subsidies . Various government programs are designed to support startups and small businesses, especially those introducing innovative solutions or operating in high-priority sectors. While the competition for such funding can be intense, securing a grant means you won’t have to repay the funds, preserving equity and reducing financial strain.

Remember, the choice of financing should align with your business’s current needs and future growth plans. Consider consulting with a financial advisor to navigate the complexities of each option and make an informed decision that supports your enterprise’s sustainable growth.

Traditional Bank Loans

When you’re seeking equipment capital, traditional bank loans often serve as the go-to option. These loans provide a lump sum of money which you can use to purchase the necessary equipment your business needs to thrive. With relatively low interest rates compared to other financing options, bank loans can be an attractive choice for entrepreneurs who have a solid business plan and a good credit score.

Applying for a traditional bank loan can be a rigorous process. You’ll need to prepare extensive documentation, including business and personal financial statements, tax returns, and a detailed business plan. Additionally, banks may require collateral, which means you might have to pledge assets that the bank can seize if you fail to make your loan payments. This adds a layer of risk but also illustrates your commitment to your business venture.

One crucial aspect to consider is the repayment term, which typically ranges from one to ten years for equipment loans. The length of the loan term you choose can significantly affect your monthly payments and the total interest you’ll pay over the life of the loan. A shorter term means higher monthly payments but less interest paid overall. Conversely, a longer term stretches out your payments but increases the total interest.


Low Interest Rates	Reduces the overall cost of borrowing
Extensive Documentation Required	Ensures thorough financial evaluation
Possible Collateral Requirement	Adds security for the lender; risk for you
Flexible Repayment Terms	Allows for budget adjustment and financial planning

Remember, it’s essential to shop around and compare offers from multiple lenders. Interest rates and loan terms can vary significantly, so doing your due diligence can save you a substantial amount of money in the long run. And don’t forget, a strong relationship with your banker can also lead to more favorable loan terms. As you navigate through the bank loan process, keeping these factors in mind will help you secure the equipment capital you need to grow your new enterprise effectively.

Equipment Financing Companies

When you’re starting a new business, securing the right equipment is non-negotiable. But how do you finance it? Equipment Financing Companies are often the go-to solution for many startups. These specialized lenders understand the unique challenges and opportunities that new businesses face.

What Are Equipment Financing Companies?

At their core, equipment financing companies offer loans or leases specifically for purchasing business equipment. Unlike general lenders, these companies often have more flexible eligibility criteria, recognizing that many new enterprises might not have a long credit history or significant collateral.

Benefits of Working with Equipment Financing Companies

Tailored Solutions : They understand equipment needs vary greatly across different industries and offer financing solutions that align with your specific requirements.
Speed : These companies typically process applications faster than traditional banks, meaning you get access to equipment sooner.
Flexibility : Whether it’s lease agreements with options to buy or loans with structured payment plans, you’ll find offers designed to fit your cash flow.

Before You Apply

Before diving in, it’s crucial to prepare:

Know Your Needs : Have a clear understanding of what equipment you need and why it’s essential for your business.
Financial Assessment : Ensure your business plan and financial projections demonstrate how the equipment will contribute to revenue.
Shop Around : Don’t settle for the first offer. Compare rates, terms, and conditions from different financing companies.

By carefully selecting the right equipment financing company, you’re not just securing capital; you’re paving the way for operational efficiency and business growth. Remember, the goal is not just to acquire equipment, but to do so in a way that aligns with your business’s overall financial strategy.

Leasing Options

When you’re starting a new enterprise, conserving cash while still getting the equipment necessary for your operations can be a tightrope walk. Leasing emerges as a strategic option, enabling you to utilize the latest technology or machinery without the hefty upfront costs tied to purchasing. Understanding the variants of leases is crucial for choosing the right path for your business needs.

Operating Lease

This option is akin to renting. You pay to use the equipment for a predetermined period, which is usually shorter than the asset’s full economic life. Here, monthly payments are typically lower, and since the lease is considered an operating expense, it doesn’t appear on your balance sheet as a liability. This can be particularly attractive if you’re keen on maintaining a cleaner financial statement or if the equipment you need rapidly becomes obsolete.

Finance Lease

Also known as a capital lease, this arrangement is more like a loan. You make regular payments on the equipment over time and at the end of the lease term, you often have the option to purchase the equipment at a residual value. The equipment is considered an asset on your balance sheet in this scenario, which might be beneficial for long-term financial planning and tax deductions related to depreciation.

Sale and Leaseback

If you already own equipment but find yourself in need of liquid capital, a sale and leaseback arrangement could be the solution. In this scenario, you sell your equipment to a leasing company and then lease it back. This provides you with an immediate influx of cash while still retaining the use of your equipment. It’s a smart move for businesses looking to optimize their balance sheets and boost cash flow without interrupting operations.

Exploring each of these leasing options can offer your business the flexibility it needs to grow. With lower upfront costs, potential tax benefits, and the ability to update your equipment frequently, leasing is a valuable strategy for securing capital without compromising your operational capabilities. Remember, it’s essential to carefully assess your business’s needs and consult with financial advisors to determine the most advantageous leasing option for your specific situation.

Government Grants and Programs

When navigating the maze of financing options, don’t overlook Government Grants and Programs tailored to support new enterprises like yours. These grants can be a game-changer, providing you with crucial capital without the burden of repayment. You’ll find a variety of programs at both federal and state levels aimed at fostering innovation, supporting specific industries, or encouraging business activities in underserved areas.

Begin your search by exploring the Small Business Administration (SBA) website. It’s a treasure trove of resources, including grant programs for research and development, exporting initiatives, and disaster recovery. Unlike loans, grants don’t require collateral, interest payments, or repayment, making them an attractive option. However, they do come with their own set of challenges. You’ll need to navigate through extensive paperwork and meet strict eligibility criteria. Preparation and patience are key.

Another noteworthy option is the SBIR (Small Business Innovation Research) program, specifically designed for small businesses engaged in research and development with the potential for commercialization. Similarly, the STTR (Small Business Technology Transfer) program facilitates cooperation between small businesses and research institutions. Here’s a quick look at the specifics:

Program	Focus Area	Benefit
SBIR	R&D with commercial potential	Funding & assistance
STTR	Cooperation between small businesses and research institutions	Funding & collaborative opportunities

To enhance your chances of securing a grant, you should:

Identify grants that align with your business goals
Prepare detailed proposals that articulate your project’s value and innovation
Understand the requirements and deadlines to ensure timely and complete applications

Remember, while government grants offer a unique opportunity to fund your equipment needs without diluting equity or incurring debt, the competition can be stiff. Engaging a grant writer or consultant could increase your chances of success.

Crowdfunding and Alternative Funding Sources

In today’s dynamic marketplace, securing the necessary equipment can be a substantial hurdle for new enterprises. Beyond traditional financing options, crowdfunding has emerged as a powerful tool for startups looking to generate capital. Crowdfunding platforms like Kickstarter and Indiegogo enable businesses to pitch their idea to the public, offering rewards or equity in return for financial contributions. This method not only helps you raise funds but also validates your business concept with a broader audience.

When exploring crowdfunding, you’ll want to craft a compelling story around your enterprise. High-quality videos, detailed project descriptions, and transparent budget breakdowns are crucial for capturing the attention of potential backers. Remember, the success of your campaign hinges on your ability to communicate the value and innovation your business brings to the table.

Moreover, consider alternative funding sources such as angel investors and venture capitalists (VCs). These individuals and firms are on the lookout for promising startups to invest in, offering capital in exchange for equity. Angel investors typically provide smaller amounts of funding earlier in the business lifecycle, whereas VCs come into play during later stages with more substantial investments.

Funding Source	Typical Investment Stage	Pros	Cons
Angel Investors	Early	Personalized support	Limited fundraising capacity
VCs	Later	Larger investments	Higher expectations

It’s essential to weigh the pros and cons of each funding source carefully. Whether you opt for crowdfunding, engage with angel investors, or pitch to venture capitalists, thorough preparation and a clear understanding of your business plan are key. Additionally, networking and building relationships within the investor community can open doors and provide valuable insights into securing the capital your venture requires for growth.

Exploring these alternative funding sources expands your options beyond traditional loans and grants, offering the flexibility and support needed to equip your startup for success.

Creating a Financial Plan

When diving into the world of financing for your new enterprise, crafting a detailed financial plan is a non-negotiable first step. This document is your roadmap, guiding you through the complexities of securing capital for equipment and ensuring your business’s sustainability and growth. Understanding your starting point is crucial, and that’s exactly what a well-prepared financial plan does.

Start by assessing your current financial situation. List all existing assets, possible investments, and any initial capital you or your partners might be bringing into the business. This clarity sets the tone for how much external funding you might need to seek.

Next, dive deep into the cost analysis of the equipment required. Don’t just look at the purchase price; consider maintenance, repair, operational costs, and even potential resale values. This comprehensive view ensures you’re not blindsided by unforeseen expenses.

Forecasting your cash flow is the heart of your financial plan. Here, you’ll estimate your revenue, which in turn, relies on realistic projections about market demand and your capacity to meet that demand with the equipment you plan to acquire. Equally, mapping out your expenses gives you a clear view of your financial horizon, helping you navigate through the initial lean period most startups face.

Lastly, don’t skip on exploring various financing options in your plan. Whether it’s a traditional bank loan, government grants, angel investors, or crowdfunding, match these options with the unique needs and capacity of your enterprise. Each source comes with its perks and drawbacks, and aligning them with your business model and growth projections is key.

Armed with a comprehensive financial plan, you position yourself as a credible, forward-thinking entrepreneur. This not only supports your quest for equipment capital but also lays a solid foundation for your business’s financial health. Engage with financial advisors, use available software tools, and leverage professional networks to refine your plan. Your financial plan is a living document, one that you’ll adjust as your business evolves and grows.

Presenting Your Plan to Lenders

When you’re ready to approach lenders with your equipment financing request, presentation is key . Your ability to secure capital hinges not just on the numbers, but on how convincingly you can convey your business’s potential and the strategic role the desired equipment plays in your success.

First and foremost, ensure your financial plan is not only thorough but also clearly outlines how the equipment will generate return on investment (ROI). Lenders want to see a direct line from their capital to your profit. Use visuals like charts and graphs to make data easily digestible. Remember, clarity and professionalism in your documentation can significantly elevate your proposition.

Next, tailor your presentation to the specific lender. Research their history, focus areas, and past funded projects. Demonstrating how your enterprise aligns with their values or success stories can set you apart. Highlight key points such as:

Business model viability
Market demand for your product or service
Historical and projected financials
Risk management strategies

Prepare to address potential concerns upfront. Lenders are likely to probe into the viability and sustainability of your business model. Having answers ready for potential risk factors not only shows preparedness but also reassures lenders of your seriousness and capability.

Moreover, demonstrate your personal commitment to the project. Lenders gauge the likelihood of success through both the business plan and the entrepreneur’s dedication. A significant personal investment, whether in time or resources, signals confidence in the venture’s success.

Lastly, leverage testimonials or references from industry experts, existing clients, or mentors. These can provide a third-party validation of your business’s potential and your capacity as an entrepreneur, adding weight to your loan application.

Approaching lenders with a well-constructed plan and a strategic presentation maximizes your chances of securing the needed equipment capital. It’s not just about the numbers; it’s about conveying a compelling story of your business’s future success and how the lenders can be a part of that journey.

Negotiating Terms and Conditions

After creating a comprehensive financial plan and pinpointing your ideal financing option for acquiring necessary equipment, it’s time to hone your negotiation skills. Engaging in negotiations with lenders or leasing companies isn’t just about securing capital; it’s about ensuring the terms and conditions align with your business’s financial health and growth trajectory. Preparation is key in these discussions, and understanding your lender’s typical concerns and requirements can give you a substantial advantage.

Before diving into negotiations, arm yourself with a deep understanding of the prevailing market rates and terms for equipment financing or leasing. This insight not only positions you as an informed borrower but also empowers you to challenge unfavorable terms or identify more competitive offers. Remember, lenders expect negotiations, so don’t hesitate to ask for better rates, more flexible payment schedules, or waivers for certain fees.

Additionally, consider the longevity and potential for technological advancements of the equipment you’re acquiring. Negotiating a clause that allows for equipment upgrades or replacements can save you from being stuck with obsolete machinery. For leases, enquire about early termination conditions or the possibility of extending the lease term to match your business’s evolving needs.

Show a willingness to compromise where it benefits your enterprise, but stand firm on aspects critical to your financial stability. Highlighting your business plan’s strengths, like projected cash flows from using the new equipment, can reinforce your negotiating position. Here’s a simple yet effective strategy:

Research market conditions and competitor terms
Tailor your negotiations to address your business’s specific needs
Showcase your financial planning and the expected ROI from the equipment
Be ready to compromise, but know your limits

Mastering negotiations is not just about striking a deal; it’s about securing a partnership that supports your new business’s success and growth without overburdening it with unsustainable terms.

Securing Equipment Capital: Dos and Don’ts

When embarking on the journey to secure equipment capital, the path is fraught with both opportunity and pitfalls. It’s crucial to navigate this terrain with a strategic mindset. Here are some critical dos and don’ts to guide you through this process.

Conduct Thorough Research: Before leaping into any financing option, spend ample time researching. Understand the interest rates, repayment terms, and any hidden fees associated with different financing options. Knowledge is power, and in this scenario, it’s also financially prudent.
Draft a Comprehensive Business Plan: Your business plan isn’t just a document; it’s a roadmap for your enterprise’s future. Ensure it includes detailed financial forecasts, how the equipment will bolster your operations, and the expected ROI. Lenders are more inclined to invest in a well-thought-out plan.
Maintain a Healthy Credit Score: Whether you’re seeking a bank loan, an equipment lease, or another form of financing, your credit score will be scrutinized. Ensure your credit history is in good standing to secure favorable terms.
Overlook the Total Cost of Ownership: Beyond the sticker price of the equipment, factor in maintenance, operation costs, and any necessary upgrades. This comprehensive cost analysis will ensure you’re not blindsided by unforeseen expenses.

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The 7 Best Business Plan Examples (2024)

As an aspiring entrepreneur gearing up to start your own business , you likely know the importance of drafting a business plan. However, you might not be entirely sure where to begin or what specific details to include. That’s where examining business plan examples can be beneficial. Sample business plans serve as real-world templates to help you craft your own plan with confidence. They also provide insight into the key sections that make up a business plan, as well as demonstrate how to structure and present your ideas effectively.

Example business plan

To understand how to write a business plan, let’s study an example structured using a seven-part template. Here’s a quick overview of those parts:

Executive summary: A quick overview of your business and the contents of your business plan.
Company description: More info about your company, its goals and mission, and why you started it in the first place.
Market analysis: Research about the market and industry your business will operate in, including a competitive analysis about the companies you’ll be up against.
Products and services: A detailed description of what you’ll be selling to your customers.
Marketing plan: A strategic outline of how you plan to market and promote your business before, during, and after your company launches into the market.
Logistics and operations plan: An explanation of the systems, processes, and tools that are needed to run your business in the background.
Financial plan: A map of your short-term (and even long-term) financial goals and the costs to run the business. If you’re looking for funding, this is the place to discuss your request and needs.

7 business plan examples (section by section)

In this section, you’ll find hypothetical and real-world examples of each aspect of a business plan to show you how the whole thing comes together.

Executive summary

Your executive summary offers a high-level overview of the rest of your business plan. You’ll want to include a brief description of your company, market research, competitor analysis, and financial information.

In this free business plan template, the executive summary is three paragraphs and occupies nearly half the page:

Company description

You might go more in-depth with your company description and include the following sections:

Nature of the business. Mention the general category of business you fall under. Are you a manufacturer, wholesaler, or retailer of your products?
Background information. Talk about your past experiences and skills, and how you’ve combined them to fill in the market.
Business structure. This section outlines how you registered your company —as a corporation, sole proprietorship, LLC, or other business type.
Industry. Which business sector do you operate in? The answer might be technology, merchandising, or another industry.
Team. Whether you’re the sole full-time employee of your business or you have contractors to support your daily workflow, this is your chance to put them under the spotlight.

You can also repurpose your company description elsewhere, like on your About page, Instagram page, or other properties that ask for a boilerplate description of your business. Hair extensions brand Luxy Hair has a blurb on it’s About page that could easily be repurposed as a company description for its business plan.

Market analysis

Market analysis comprises research on product supply and demand, your target market, the competitive landscape, and industry trends. You might do a SWOT analysis to learn where you stand and identify market gaps that you could exploit to establish your footing. Here’s an example of a SWOT analysis for a hypothetical ecommerce business:

You’ll also want to run a competitive analysis as part of the market analysis component of your business plan. This will show you who you’re up against and give you ideas on how to gain an edge over the competition.

Products and services

This part of your business plan describes your product or service, how it will be priced, and the ways it will compete against similar offerings in the market. Don’t go into too much detail here—a few lines are enough to introduce your item to the reader.

Marketing plan

Potential investors will want to know how you’ll get the word out about your business. So it’s essential to build a marketing plan that highlights the promotion and customer acquisition strategies you’re planning to adopt.

Most marketing plans focus on the four Ps: product, price, place, and promotion. However, it’s easier when you break it down by the different marketing channels . Mention how you intend to promote your business using blogs, email, social media, and word-of-mouth marketing.

Here’s an example of a hypothetical marketing plan for a real estate website:

marketing section template for business plan

Logistics and operations

This section of your business plan provides information about your production, facilities, equipment, shipping and fulfillment, and inventory.

Financial plan

The financial plan (a.k.a. financial statement) offers a breakdown of your sales, revenue, expenses, profit, and other financial metrics. You’ll want to include all the numbers and concrete data to project your current and projected financial state.

In this business plan example, the financial statement for ecommerce brand Nature’s Candy includes forecasted revenue, expenses, and net profit in graphs.

It then goes deeper into the financials, citing:

Funding needs
Project cash-flow statement
Project profit-and-loss statement
Projected balance sheet

You can use Shopify’s financial plan template to create your own income statement, cash-flow statement, and balance sheet.

Types of business plans (and what to write for each)

A one-page business plan is a pared down version of a standard business plan that’s easy for potential investors and partners to understand. You’ll want to include all of these sections, but make sure they’re abbreviated and summarized:

Logistics and operations plan
Financials

A startup business plan is meant to secure outside funding for a new business. Typically, there’s a big focus on the financials, as well as other sections that help determine the viability of your business idea—market analysis, for example. Shopify has a great business plan template for startups that include all the below points:

Market research: in depth
Financials: in depth

Your internal business plan acts as the enforcer of your company’s vision. It reminds your team of the long-term objective and keeps them strategically aligned toward the same goal. Be sure to include:

Market research

Feasibility

A feasibility business plan is essentially a feasibility study that helps you evaluate whether your product or idea is worthy of a full business plan. Include the following sections:

A strategic (or growth) business plan lays out your long-term vision and goals. This means your predictions stretch further into the future, and you aim for greater growth and revenue. While crafting this document, you use all the parts of a usual business plan but add more to each one:

Products and services: for launch and expansion
Market analysis: detailed analysis
Marketing plan: detailed strategy
Logistics and operations plan: detailed plan
Financials: detailed projections

Free business plan templates

Now that you’re familiar with what’s included and how to format a business plan, let’s go over a few templates you can fill out or draw inspiration from.

Bplans’ free business plan template

Bplans’ free business plan template focuses a lot on the financial side of running a business. It has many pages just for your financial plan and statements. Once you fill it out, you’ll see exactly where your business stands financially and what you need to do to keep it on track or make it better.

PandaDoc’s free business plan template

PandaDoc’s free business plan template is detailed and guides you through every section, so you don’t have to figure everything out on your own. Filling it out, you’ll grasp the ins and outs of your business and how each part fits together. It’s also handy because it connects to PandaDoc’s e-signature for easy signing, ideal for businesses with partners or a board.

Miro’s Business Model Canvas Template

Miro’s Business Model Canvas Template helps you map out the essentials of your business, like partnerships, core activities, and what makes you different. It’s a collaborative tool for you and your team to learn how everything in your business is linked.

Better business planning equals better business outcomes

Building a business plan is key to establishing a clear direction and strategy for your venture. With a solid plan in hand, you’ll know what steps to take for achieving each of your business goals. Kickstart your business planning and set yourself up for success with a defined roadmap—utilizing the sample business plans above to inform your approach.

Business plan FAQ

What are the 3 main points of a business plan.

Concept. Explain what your business does and the main idea behind it. This is where you tell people what you plan to achieve with your business.
Contents. Explain what you’re selling or offering. Point out who you’re selling to and who else is selling something similar. This part concerns your products or services, who will buy them, and who you’re up against.
Cash flow. Explain how money will move in and out of your business. Discuss the money you need to start and keep the business going, the costs of running your business, and how much money you expect to make.

How do I write a simple business plan?

To create a simple business plan, start with an executive summary that details your business vision and objectives. Follow this with a concise description of your company’s structure, your market analysis, and information about your products or services. Conclude your plan with financial projections that outline your expected revenue, expenses, and profitability.

What is the best format to write a business plan?

The optimal format for a business plan arranges your plan in a clear and structured way, helping potential investors get a quick grasp of what your business is about and what you aim to achieve. Always start with a summary of your plan and finish with the financial details or any extra information at the end.

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What Is Capital?

Understanding capital, how capital is used, business capital structure, types of capital, capital vs. money.

Capital FAQs

The Bottom Line

Capital: definition, how it's used, structure, and types in business.

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

Capital is a broad term that can describe anything that confers value or benefit to its owners, such as a factory and its machinery, intellectual property like patents, or the financial assets of a business or an individual.

While money itself may be construed as capital, capital is more often associated with cash that is being put to work for productive or investment purposes. In general, capital is a critical component of running a business from day to day and financing its future growth.

Business capital may derive from the operations of the business or be raised from debt or equity financing. Common sources of capital include:

Personal savings
Friends and family
Angel investors
Venture capitalists (VC)
Corporations
Federal, state, or local governments
Private loans
Work or business operations
Going public with an IPO

When budgeting, businesses of all kinds typically focus on three types of capital: working capital, equity capital, and debt capital. A business in the financial industry identifies trading capital as a fourth component.

Learn more about the types, sources, and structures of capital.

Key Takeaways

The capital of a business is the money it has available to pay for its day-to-day operations and to fund its future growth.
The four major types of capital include working capital, debt, equity, and trading capital. Trading capital is used by brokerages and other financial institutions.
Any debt capital is offset by a debt liability on the balance sheet.
The capital structure of a company determines what mix of these types of capital it uses to fund its business.
Economists look at the capital of a family, a business, or an entire economy to evaluate how efficiently it is using its resources.

Investopedia / Matthew Collins

From the economists' perspective, capital is key to the functioning of any unit, whether that unit is a family, a small business, a large corporation, or an entire economy.

Capital assets can be found on either the current or long-term portion of the balance sheet. These assets may include cash, cash equivalents, and marketable securities as well as manufacturing equipment, production facilities, and storage facilities.

In the broadest sense, capital can be a measurement of wealth and a resource for increasing wealth. Individuals hold capital and capital assets as part of their net worth. Companies have capital structures that define the mix of debt capital, equity capital, and working capital for daily expenditures that they use.

Capital is typically cash or liquid assets being held or obtained for expenditures. In a broader sense, the term may be expanded to include all of a company’s assets that have monetary value, such as its equipment, real estate, and inventory. But when it comes to budgeting, capital is cash flow.

In general, capital can be a measurement of wealth and also a resource that provides for increasing wealth through direct investment or capital project investments. Individuals hold capital and capital assets as part of their net worth. Companies have capital structures that include debt capital, equity capital, and working capital for daily expenditures.

How individuals and companies finance their working capital and invest their obtained capital is critical for their prosperity.

Capital is used by companies to pay for the ongoing production of goods and services to create profit. Companies use their capital to invest in all kinds of things to create value. Labor and building expansions are two common areas of capital allocation. By investing capital, a business or individual seeks to earn a higher return than the capital's costs.

At the national and global levels, financial capital is analyzed by economists to understand how it is influencing economic growth. Economists watch several metrics of capital including personal income and personal consumption from the Commerce Department’s Personal Income and Outlays reports. Capital investment also can be found in the quarterly Gross Domestic Product report.

Typically, business capital and financial capital are judged from the perspective of a company’s capital structure. In the U.S., banks are required to hold a minimum amount of capital as a risk mitigation requirement (sometimes called economic capital ) as directed by the central banks and banking regulations.

Other private companies are responsible for assessing their capital thresholds, capital assets, and capital needs for corporate investment. Most of the financial capital analysis for businesses is done by closely analyzing the balance sheet.

A company’s balance sheet provides for metric analysis of a capital structure, which is split among assets, liabilities, and equity. The mix defines the structure.

Debt financing represents a cash capital asset that must be repaid over time through scheduled liabilities. Equity financing, meaning the sale of stock shares, provides cash capital that is also reported in the equity portion of the balance sheet. Debt capital typically comes with lower rates of return and strict provisions for repayment.

Some of the key metrics for analyzing business capital are weighted average cost of capital, debt to equity, debt to capital, and return on equity.

Below are the top four types of capital that businesses focus on in more detail

Debt Capital

A business can acquire capital by borrowing. This is debt capital, and it can be obtained through private or government sources. For established companies, this most often means borrowing from banks and other financial institutions or issuing bonds. For small businesses starting on a shoestring, sources of capital may include friends and family, online lenders, credit card companies, and federal loan programs.

Like individuals, businesses must have an active credit history to obtain debt capital. Debt capital requires regular repayment with interest. The interest rates vary depending on the type of capital obtained and the borrower’s credit history.

Individuals quite rightly see debt as a burden, but businesses see it as an opportunity, at least if the debt doesn't get out of hand. It is the only way that most businesses can obtain a large enough lump sum to pay for a major investment in the future. But both businesses and their potential investors need to keep an eye on the debt to capital ratio to avoid getting in too deep.

Issuing bonds is a favorite way for corporations to raise debt capital, especially when prevailing interest rates are low, making it cheaper to borrow. In 2020, for example, corporate bond issuance by U.S. companies soared 70% year over year, according to Moody's Analytics. Average corporate bond yields had then hit a multi-year low of about 2.3%.

Equity Capital

Equity capital can come in several forms. Typically, distinctions are made between private equity, public equity, and real estate equity.

Private and public equity will usually be structured in the form of shares of stock in the company. The only distinction here is that public equity is raised by listing the company's shares on a stock exchange while private equity is raised among a closed group of investors.

When an individual investor buys shares of stock, they are providing equity capital to a company. The biggest splashes in the world of raising equity capital come, of course, when a company launches an initial public offering (IPO). In 2021, the Duolingo IPO valued the company at $5 million and shook the Nasdaq market.

Working Capital

A company's working capital is its liquid capital assets available for fulfilling daily obligations. It is calculated through the following two assessments:

Current Assets – Current Liabilities
Accounts Receivable + Inventory – Accounts Payable

Working capital measures a company's short-term liquidity. More specifically, it represents its ability to cover its debts, accounts payable, and other obligations that are due within one year.

Note that working capital is defined as current assets minus its current liabilities. A company that has more liabilities than assets could soon run short of working capital.

Trading Capital

Any business needs a substantial amount of capital to operate and create profitable returns. Balance sheet analysis is central to the review and assessment of business capital.

Trading capital is a term used by brokerages and other financial institutions that place a large number of trades daily. Trading capital is the amount of money allotted to an individual or a firm to buy and sell various securities.

Investors may attempt to add to their trading capital by employing a variety of trade optimization methods. These methods attempt to make the best use of capital by determining the ideal percentage of funds to invest with each trade.

In particular, to be successful, traders need to determine the optimal cash reserves required for their investing strategies.

A big brokerage firm like Charles Schwab or Fidelity Investments will allocate considerable trading capital to each of the professionals who trade stocks and other assets for it.

At its core, capital is money. However, for financial and business purposes, capital is typically viewed from the perspective of current operations and investments in the future.

Capital usually comes with a cost. For debt capital, this is the cost of interest required in repayment. For equity capital, this is the cost of distributions made to shareholders. Overall, capital is deployed to help shape a company's development and growth .

What Does Capital Mean in Economics?

To an economist, capital usually means liquid assets. In other words, it's cash in hand that is available for spending, whether on day-to-day necessities or long-term projects. On a global scale, capital is all of the money that is currently in circulation, being exchanged for day-to-day necessities or longer-term wants.

What Is the Capital in a Business?

The capital of a business is the money it has available to fund its day-to-day operations and to bankroll its expansion for the future. The proceeds of its business are one source of capital.

Capital assets are generally a broader term. The capital assets of an individual or a business may include real estate, cars, investments (long or short-term), and other valuable possessions. A business may also have capital assets including expensive machinery, inventory, warehouse space, office equipment, and patents held by the company.

Many capital assets are illiquid—that is, they can't be readily turned into cash to meet immediate needs.

A company that totaled up its capital value would include every item owned by the business as well as all of its financial assets (minus its liabilities). But an accountant handling the day-to-day budget of the company would consider only its cash on hand as its capital.

What Are Examples of Capital?

Any financial asset that is being used may be capital. The contents of a bank account, the proceeds of a sale of stock shares, or the proceeds of a bond issue all are examples. The proceeds of a business's current operations go onto its balance sheet as capital.

What Are the 3 Sources of Capital?

Most businesses distinguish between working capital, equity capital, and debt capital, although they overlap.

Working capital is the money needed to meet the day-to-day operation of the business and pay its obligations promptly.
Equity capital is raised by issuing shares in the company, publicly or privately, and is used to fund the expansion of the business.
Debt capital is borrowed money. On the balance sheet, the amount borrowed appears as a capital asset while the amount owed appears as a liability.

The word capital has several meanings depending on its context.

On a company balance sheet, capital is money available for immediate use, whether to keep the day-to-day business running or to launch a new initiative. It may be defined on its balance sheet as working capital, equity capital, or debt capital, depending on its origin and intended use. Brokerages also list trading capital; that is the cash available for routine trading in the markets.

When a company defines its overall capital assets, it generally will include all of its possessions that have a cash value, such as equipment and real estate.

When economists look at capital, they are most often looking at the cash in circulation within an entire economy. Some of the major national economic indicators are the ups and downs of all of the cash in circulation. One example is the monthly Personal Income and Outlays report from the U.S. Bureau of Economic Analysis.

Federal Reserve Board. " Policy Tools: Reserve Requirements ."

Moody's Analytics. " Corporate Bond Issuance Boom May Steady Credit Quality, On Balance ."

St. Louis Fed. " Moody's Seasoned Aaa Corporate Bond Yield ."

CNBC. " Duolingo Closes Up 36% in Nasdaq Debut ."

Bureau of Economic Analysis. " Personal Income ."

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Machine Tooling Business Plan

Start your own machine tooling business plan

Machine Tooling

Executive summary executive summary is a brief introduction to your business plan. it describes your business, the problem that it solves, your target market, and financial highlights.">.

Machine Tooling is a Kansas City, Kansas based company, whose mission is to be successful by effectively utilizing the philosophies of high quality, advanced techniques, and customer service.

Over the past two years, Machine Tooling has worked very hard to build its infrastructure and the systems to handle a significant amount of business. We have worked aggressively to construct walls, make electrical advancements, and other leasehold improvements to establish the business. Additionally, the company has configured a staff who is equipped to handle many tasks. These individuals are highly qualified and experienced.

The company has designed and built machines and automated systems that are ready for market. To compliment this, we have developed strong working relationships with our customers and plan to further this area by continuing to offer customers value-added improvements and vertically-integrate the business to support these improvements.

Machine Tooling has a management team with direct knowledge of the industry, extensive research experience, and unique administrative skills. The company’s management team consists of people with broad backgrounds in manufacturing, automation, and finance. The management staff consists of Mr. Peter Newton, CEO, Mr. John Abbot, president, and Mr. Chris Manuel, vice president of Marketing.

Projected revenues for Year 1 to Year 3 are $1.9 million, $4.1 million, and $5.3 million, respectively. To continue in a steady pattern of growth, Machine Tooling plans to attract a larger customer base and be in a more attractive negotiating position. To provide the financial strength needed for the company to achieve its goals, Machine Tooling has decided to go public.

The company is seeking $500,000 for expansion purposes. These include:

Marketing of new product lines.
Growth into new markets.
Purchasing additional equipment.

Going public will have a positive effect on Machine Tooling’s sales ability. Replacing the company’s debt will afford the opportunity to reduce the overall burden rate. This will give Machine Tooling a competitive advantage when compared to similar-sized companies because they are carrying debt. With this expansion and improved burden rate, Machine Tooling will be a stronger force in the manufacturing industry marketplace. The financial strength that will be achieved with this type of expansion will give Machine Tooling the capacity to establish a larger, more diversified customer base which will generate increased sales revenue. This is an exponential growth opportunity for the company.

1.1 Mission

The company’s mission is to be successful by effectively utilizing the philosophies of high quality, advanced techniques, and customer service.

1.2 Keys to Success

It is important that the company continues to provide superb customer service and fast delivery. At the same time, the company’s further success will depend on securing new customers in the served market niches.

Machine tooling business plan, executive summary chart image

Company Summary company overview ) is an overview of the most important points about your company—your history, management team, location, mission statement and legal structure.">

Business Description Machine Tooling has been operating in Kansas City since May, 1989. We are a Kansas Limited Liability Company (LLC). The company occupies 10,000 square feet of manufacturing area, including offices for administration, engineering, and a quality assurance area.

Overview of Technology and Products Machine Tooling was formed to provide full-service, close-tolerance contract machining of machine and tooling components, production machining, and automation of production lines. The diverse manufacturing equipment at our facility accommodates versatility and allows the plant to operate self sufficiently.

Managerial expertise and industry experience have helped the company to show profits every year since its inception. During the last three years, the company further entrenched its position in its market niche, which resulted in healthy financials that can be seen in Table 2.1.

2.1 Company History

Machine Tooling was founded in Kansas City in 1989 on the basis of providing quality machine tools for selected industries. The owners had worked in this field for several years and had established multiple business contacts who helped the company pick up major business accounts. By 1999, the company’s revenues reached $1.5 million, and the management realized that further company growth would be difficult without securing additional working capital. To be less debt-dependent, the management has decided to go public. However, before the company issues the initial public offering (IPO), Machine Tooling currently seeks $500,000 for expansion purposes. Such expansion will improve the company’s sales ability and positively affect its IPO prospects.

Machine tooling business plan, company summary chart image

Past Performance
	1997	1998	1999
Sales	$1,000,000	$1,300,000	$1,500,000
Gross Margin	$600,000	$800,000	$1,000,000
Gross Margin %	60.00%	61.54%	66.67%
Operating Expenses	$400,000	$550,000	$700,000
Collection Period (days)	19	22	34
Inventory Turnover	3.00	3.00	3.00

Balance Sheet
	1997	1998	1999

Current Assets
Cash	$20,000	$40,000	$60,000
Accounts Receivable	$40,000	$80,000	$130,000
Inventory	$30,000	$60,000	$90,000
Other Current Assets	$5,000	$10,000	$15,000
Total Current Assets	$95,000	$190,000	$295,000

Long-term Assets
Long-term Assets	$100,000	$100,000	$100,000
Accumulated Depreciation	$10,000	$20,000	$30,000
Total Long-term Assets	$90,000	$80,000	$70,000

Total Assets	$185,000	$270,000	$365,000

Current Liabilities
Accounts Payable	$25,000	$50,000	$75,000
Current Borrowing	$15,000	$35,000	$50,000
Other Current Liabilities (interest free)	$5,000	$5,000	$10,000
Total Current Liabilities	$45,000	$90,000	$135,000

Long-term Liabilities	$50,000	$50,000	$50,000
Total Liabilities	$95,000	$140,000	$185,000

Paid-in Capital	$50,000	$50,000	$50,000
Retained Earnings	$40,000	$80,000	$130,000
Earnings	$0	$0	$0
Total Capital	$90,000	$130,000	$180,000

Total Capital and Liabilities	$185,000	$270,000	$365,000

Other Inputs
Payment Days	30	30	30
Sales on Credit	$750,000	$1,000,000	$1,125,000
Receivables Turnover	18.75	12.50	8.65

Background on Products and Technology Machine Tooling is planning to assemble the first level of the armature assembly. Laminates will be assembled to rotors and shipped daily to supplement customer production. This will take place in the second quarter of 2000. An elite team of professionals experienced in this industry and this type of product has been put together to drive this project.

The Machine Tooling Engineering group will continue to support internal and external automation contributing to production type sales and value engineering. They will co-engineer the next generation of food processing equipment, and will also pursue the building and assembly of the food processing machinery product line that the company now manufactures the components of:

Rotor shafts.
Specialized manufacturing service.
Food processing equipment.
Engineering service.
Assembly machinery.

Market Analysis Summary how to do a market analysis for your business plan.">

Overview U.S. machine tool industry (Provided by Standard & Poor’s) The U.S. machine tool industry is in a period of relative stability, although industry size, employment, and revenues typically fluctuate in response to swings in the business cycle. The number of industry establishments stands at approximately 600, according to U.S. Census Bureau data. These producers are concentrated in several midwestern and northeastern states: Ohio, Michigan, and Illinois have the greatest concentration of industry establishments.

The composition of the industry has changed since the beginning of the 1990s as a result of consolidation and foreign investment. A spate of buyouts and acquisitions occurred in the early to middle 1990s, and a number of privately-held companies became publicly owned. A wave of investment by the European automotive industry spurred similar investments by continental machine-tool producers, which established U.S. production facilities to supply their primary customer group. Japanese investment also picked up in the first half of the decade, driven by the strong yen. The newcomers joined a contingent of Japanese machine-tool manufacturers that had established U.S. production facilities in the 1980s in response to U.S. import restrictions that have since been lifted.

4.1 Market Segmentation

The company’s target customers:

Automobile seating manufacturers. These customers require customized machine tools to better serve their clients.
Fine blanking and stamping manufacturers. These customers have a strong need for specialized manufacturing services.
Manufacturers of complete product lines. Value adding assembly is most required by this customer segment.

The table and chart below outline the total market potential and estimated growth rates for the type of products manufactured by Machine Tooling.

Machine tooling business plan, market analysis summary chart image

Market Analysis
		2000	2001	2002	2003	2004
Potential Customers	Growth						CAGR
Automobile Seating	2%	300	306	312	318	324	1.94%
Fine Blanking & Stamping	1%	150	152	154	156	158	1.31%
Complete Product Lines	1%	200	202	204	206	208	0.99%
Other	0%	100	100	100	100	100	0.00%
Total	1.31%	750	760	770	780	790	1.31%

4.2 Target Market Segment Strategy

Machine Tooling will focus our market offerings on three major customer groups:

Automobile seating manufacturers.
Fine blanking and stamping manufacturers.
Manufactures of complete product lines.

Our market research shows that these customer segments are the most demanding in terms of the engineering, technical service support, and automated design. Machine Tooling is particularly strong in these areas and will utilize our capacities to serve these clients. The company will seek customers who require production of components used in upper-end product lines. This will provide a further possibility for Machine Tooling to offer our value-added engineering services.

4.2.1 Market Needs

Each of the served segment’s market needs are shaped by the desire to procure quality products at reasonable prices. Machine Tooling is in the position to offer just that to our clientele, and we understand that our products must help our clients to better add value to their own end customers.

4.2.2 Market Growth

Annual U.S. machine tool product shipments have grown for the last four years, topping $46.5 billion in 1997. This trend was expected to hold with 1998 shipments on track to exceed $7.1 billion, an increase of nine percent in current dollars (seven percent in constant dollars). Industry exports reflect a similar pattern of growth. U.S. machine tool exports reflect a similar pattern of growth. U.S. machine tool exports climbed to over $2.8 billion in 1997 and were expected to rise four percent in 1998 to more than $3 billion. With continued growth projected for the U.S. economy, U.S. machine tool producers have reason to be optimistic. Machine tools purchases historically are driven by economic prosperity. The industry’s upward trend is expected to continue for several more years, in parallel with the domestic economy’s projected sustained growth. Product shipments of machine tools, expressed in constant dollars, are forecast to increase two percent in 1999.

U.S. machine tool manufacturers can expect moderate growth in shipments during the period of 1999-2003. Projections call for annual increases of approximately four percent. The rising demand for capital equipment will be driven by manufacturers’ need to improve productivity, increase capacity, and cut labor costs. Price increases will be virtually nonexistent as manufacturers continue to place strong price pressure on machine tool suppliers. The metal cutting sector is expected to be somewhat stronger than the metal forming sector.

The most active customer markets for U.S. machine tool builders in the near future will be the aerospace, appliance, automotive, farm machinery, and job shop industries. Demand will be particularly robust among job shops. The nation’s tool and die businesses are in a retooling mode, investing in a range of new, high-technology equipment to improve quality and precision. Job shops are increasing and widening their machining capabilities, particularly in areas such as high-speed cutting and laser, waterjet, and rapid prototyping technologies. The trend toward outsourcing by a range of producers, most notably the automotive industry, will further increase this sector’s demand.

Prospects for export markets are less secure. Key markets that are expected to be soft in the near future include the weakened Pacific Rim region and the European Union, where the introduction of a common European currency in select countries is creating uncertainty. As a result, slower growth in exports is likely, as well as an increase in the U.S. machine tool trade deficit. Machine tool exports are expected to grow by three percent annually in the period 1999-2003. The strongest markets for U.S. machine tool exporters will be Canada, Mexico, Chile, Argentina, and Brazil.

4.3 Industry Analysis

Market 1 – Metal cutting tools In 1997, shipments from production machinery industries totaled nearly $82 billion. The largest subsectors, in constant-dollar terms, were air conditioning, refrigeration and heating (31.8%), construction machinery (27.2%), and farm machinery (17.1%).

Industry: Metalworking machinery, nec.

Establishments that are primarily engaged in manufacturing metalworking machinery, not elsewhere classified.

Market Size Statistics

Estimated number of U.S. establishments	674
Number of people employed in this industry	15,596
Total annual sales in this industry	$2,044.4 million
Average employees per establishment	25
Average sales per establishment	$3.6 million

Market 2 – Construction machinery Construction machinery (SIC 3531) consists of earthmoving equipment (bulldozers, shovel loaders, and excavators), off-highway trucks, power cranes, crawlers, draglines, and trenchers. However, if the industry can capitalize on new technologies and expand into developing markets, growth is expected to average nearly three percent from 1999 to 2002. An important factor in the future growth of this subsector could be the National Ambient Air Quality Standards, issued by the EPA in July, 1997. Firms are in the process of assessing the impact of the change in ozone standards on their production processes.

Establishments that are primarily engaged in manufacturing heavy machinery and equipment, such as bulldozers, concrete mixers, and cranes.

Estimated number of U.S. establishments	2,266
Number of people employed in this industry	125,081
Total annual sales in this industry	$58,196.9 million
Average employees per establishment	57
Average sales per establishment	$34.3 million

Market 3 – Food products machinery U.S. manufacturers of food products machinery benefit from the huge domestic market. According to the U.S. Department of Agriculture, the processed food industry is the largest manufacturing and distribution sector in the U.S. economy, accounting for more than one-sixth of the nation’s industrial activity. In addition, the United States is a major player in the global food industry, manufacturing approximately one-fourth of the world’s processed foods. In 1997 U.S. shipments of processed foods and beverages were estimated at approximately $471 billion. Six of the 10 largest, and 21 of the top 50 food processing companies in the world are headquartered in the United States. In addition to providing a large and viable home market for domestic machinery manufacturers and process technologists, the United States is a magnet market for advanced foreign high-technology machinery suppliers and for direct investment in the food industry.

Market 4 – Electrical equipment Between 1992 and 1996, electrical equipment industry shipments boomed, increasing five percent in real terms. This growth ended a negative period in 1990 and 1991, during which shipments declined more than nine percent. The most important factor underlying those boom years was significant investment by firms in terms of both expansion and upgrading of their capital base. Low interest rates, technological improvements, and a healthy export climate stimulated this capital spending. The relays and industrial controls subsector, and the motors and generators subsector, historically have had the largest shipment values; during the period 1992-1996, both subsectors experienced the most vigorous growth, with average annual increases in shipments approximating seven percent each.

Market 6 – Motors and Generators This subsector includes the production of electric motors (other than engine starting motors) and power generators, motor generator sets, railway motors and control equipment, and motors, generators, and control equipment for gasoline, electric, and oil-electric buses and trucks.

Other Markets Industry: Power transmission equipment, nec. Establishments that are primarily engaged in manufacturing mechanical power transmission equipment and parts, for industrial machinery.

Estimated number of U.S. establishments	18,984
Number of people employed in this industry	427
Total annual sales in this industry	$3,338 million
Average employees per establishment	47
Average sales per establishment	$10.9 million

4.3.1 Industry Participants

Competitive threats come from machine shops who perform similar types of machining, as well as design firms that have established relationships with a large customer base. Their machinery, tooling, fixturing, and inspection equipment is tailored to accommodate specific customer products. Their weaknesses, however, are lack of engineering ability, process control, expertise to develop and combine processes, to synchronously combine operations, and an inability to design and build automatic load and unload systems for internal use.

4.3.2 Competition and Buying Patterns

Machine Tooling believes that our customers choose our products based on the following criteria:

Performance.
Customer service and support.

Strategy and Implementation Summary

The market strategy is to capitalize on our expertise by positioning the company to acquire strategic companies within the industry. We plan to leverage our expertise to acquire companies with product lines that compliment our manufacturing operations. The company’s goal in the next year is to secure more contract manufacturing positions. The company’s goal in the next five years is to continue with our “value added” scheme and embark on an acquisition program that will see the company take over key industry players.

5.1 Value Proposition

Machine Tooling’s products and services offer the following advantages to customers.

Delivery. We provide on-time delivery, thereby reducing customer inventory and providing them with overall cost reduction.
Quality. The products we supply are of high quality and have attributes that enable customers to carry out their business functions.
Price. Our products competitively priced, thus helping customers control their own bottom line.

5.2 Competitive Edge

Machine Tooling has several highly significant competitive advantages:

Engineering and technical support service.
Automated system design and build.
Engineering and technical skills.
Cross-functional teams encourage creativity.
Quality systems are in place.

5.3 Marketing Strategy

The company’s marketing strategy will be to continue to promote sales of our product lines, systems, presses, automation projects, and machining capacity. In machining, focus will continue to be on components used in semi-sophisticated equipment where a possibility exists to pursue the next level of integration by assembling components or prepare part kits for assisted assembly. Focusing on this product-component relationship will facilitate the company’s ability to pursue the vertical integration of the business and pass on the value-added savings to our customers.

5.3.1 Marketing Programs

The overall marketing plan for Machine Tooling’s service is based on the following fundamentals:

The segment of the markets planned to reach.
Distribution channels planned to be used to reach market segments: television, radio, sales associates, and mail order.
Share of the market expected to capture over a fixed period of time.

Market Responsibilities. In order to capitalize on sales opportunities, Machine Tooling will require an effective promotional campaign. This will be accomplished through television, radio, and magazine advertisements, as well as posters on billboards throughout the state. To help our customers with name recognition, we will offer a variety of promotional items with the company logo on them; the initial giveaways will be t-shirts, stickers, mugs, and pens.

Investment in Advertising and Promotion. A fixed amount of sales revenues will go toward the statewide advertisement campaign. On an ongoing basis, we feel that we can budget advertising expenses at less than five percent of revenues to the company.

5.3.2 Pricing Strategy

Pricing for machined components is developed usually by conducting a thorough time study analysis. This involves tool and cutter selection based on the operations to be performed and the material being processed. Machining, traverse, and material handling times are calculated based on known feeds, speeds, and rapid traverse rates. This total is then factored by the company’s burden rate and profit margin, and then factored again based on market value.

5.4 Sales Strategy

Machine Tooling’s sales plan is to seek businesses that will advance the company’s quest to vertically integrate and become a stronger force in the manufacturing industry. The company will continue to strive towards procuring sales of our product lines and machining capacity. The focus in machining is securing contracts to produce components used in upper-end product lines, yielding opportunities for “value added” engineering.

To accomplish Machine Tooling’s endeavors, the company will utilize internal and external sales tactics. By aggressively seeking new accounts and taking full advantage of the existing relationships the company has with current customers and broadening its customer base, the company will expand and be able to compete with the leading companies in the industry. Machine Tooling plans to use a direct sales force, relationship selling, and subcontractors to reach our markets. These channels are most appropriate because time to market, reduced capital requirements, and fast access to established distribution channels.

5.4.1 Sales Forecast

The chart and table below outline Machine Tooling’s sales forecasts. The company will gradually increase the share of the high-value assembly services in its sales mix over the next two years, which will add to the company’s bottom line.

Machine tooling business plan, strategy and implementation summary chart image

Sales Forecast
	2000	2001	2002
Sales
Automation	$220,000	$330,000	$420,000
Production Machining	$270,000	$360,000	$440,000
Specialized Manufacturing	$710,000	$970,000	$1,600,000
Value Added Assembly	$760,000	$2,400,000	$2,800,000
Total Sales	$1,960,000	$4,060,000	$5,260,000

Direct Cost of Sales	2000	2001	2002
Automation	$45,200	$67,000	$85,000
Production Machining	$54,700	$73,000	$89,000
Specialized Manufacturing	$144,400	$197,000	$325,000
Value Added Assembly	$155,700	$490,000	$570,000
Subtotal Direct Cost of Sales	$400,000	$827,000	$1,069,000

Management Summary management summary will include information about who's on your team and why they're the right people for the job, as well as your future hiring plans.">

The company’s management philosophy is based on responsibility and mutual respect. Machine Tooling will maintain an environment and structure that will encourage productivity and respect for customers and fellow employees.

Machine Tooling’s management is highly experienced and qualified. The key management team includes: Mr. Peter Newton CEO, Mr. John Abbot, president, and Mr. Chris Manuel, vice president of Marketing. As the table below outlines, the company will strive to maintain lean overhead. Besides the senior management team and an administrative assistant, Machine Tooling currently employs a production manager who oversees all the production facilities and the staff of ten.

10 Production workers are tracked as Cost of Goods in the Profit and Loss table. To accommodate the growing sales projections, an additional five productions workers will be hired in 2001.

Personnel Plan
	2000	2001	2002
Peter Newton, CEO	$75,000	$80,000	$90,000
John Abbot, President	$75,000	$80,000	$90,000
Chris Manuel, VP Marketing	$60,000	$65,000	$75,000
Production Manager	$45,000	$50,000	$55,000
Administrative Assistant	$30,000	$35,000	$40,000
Total People	15	20	20

Total Payroll	$285,000	$310,000	$350,000

Financial Plan investor-ready personnel plan .">

The company is seeking $500,000 for expansion purposes. The use of funds will be broken down as follows:

Marketing of new product lines	$30,000
Growth into new markets	$50,000
Purchasing additional equipment	$270,000
Working Capital	$100,000
Other (Debt Management)	$50,000

7.1 Important Assumptions

Important assumptions for this plan are found in the following table.

General Assumptions
	2000	2001	2002
Plan Month	1	2	3
Current Interest Rate	10.00%	10.00%	10.00%
Long-term Interest Rate	10.00%	10.00%	10.00%
Tax Rate	25.42%	25.00%	25.42%
Other	0	0	0

7.2 Break-even Analysis

Machine Tooling is operating well above the break-even point.

Machine tooling business plan, financial plan chart image

Break-even Analysis


Monthly Revenue Break-even	$90,953

Assumptions:
Average Percent Variable Cost	20%
Estimated Monthly Fixed Cost	$72,391

7.3 Projected Profit and Loss

The table below provides Machine Tooling’s projected income statements for 2000-2002.

Pro Forma Profit and Loss
	2000	2001	2002
Sales	$1,960,000	$4,060,000	$5,260,000
Direct Cost of Sales	$400,000	$827,000	$1,069,000
Production Personnel	$350,040	$600,000	$650,000
Total Cost of Sales	$750,040	$1,427,000	$1,719,000

Gross Margin	$1,209,960	$2,633,000	$3,541,000
Gross Margin %	61.73%	64.85%	67.32%


Expenses
Payroll	$285,000	$310,000	$350,000
Marketing/Promotion	$167,900	$220,000	$265,000
Depreciation	$9,996	$30,000	$40,000
Quality Assurance	$93,800	$104,000	$125,000
General & Administrative	$96,000	$124,000	$174,000
Manufacturing & Engineering	$129,600	$130,000	$175,000
Machining & Systems Building	$86,400	$100,000	$110,000
Payroll Taxes	$0	$0	$0
Other	$0	$0	$0

Total Operating Expenses	$868,696	$1,018,000	$1,239,000

Profit Before Interest and Taxes	$341,264	$1,615,000	$2,302,000
EBITDA	$351,260	$1,645,000	$2,342,000
Interest Expense	$47,705	$29,150	$12,470
Taxes Incurred	$74,621	$396,463	$581,922

Net Profit	$218,938	$1,189,388	$1,707,608
Net Profit/Sales	11.17%	29.30%	32.46%

7.4 Projected Cash Flow

The company’s projected cash flow statements are presented below.

The existing short-term liabilities ($50,000 in total) are paid out in ten monthly payments of $5,000 each starting in March, 2000.
The $500,000 long-term loan is expected to be secured in January, 2000 (two payments of $250,000 each are expected in January and February). This loan will be repaid quarterly over three years.
In April, $50,000 from the expected loan will be used to completely repay the existing long-term obligations.
After that, in May and July, 2000, the company will purchase additional equipment and buildings in the total amount of $270,000.
In years 2001 and 2002, further capital expenditures in the amount of $200,000 and $300,000, respectively, are planned to accommodate for increased sales. In both cases, “ten year, straight-line” depreciation is assumed.

Pro Forma Cash Flow
	2000	2001	2002
Cash Received

Cash from Operations
Cash Sales	$490,000	$1,015,000	$1,315,000
Cash from Receivables	$1,352,925	$2,780,277	$3,793,730
Subtotal Cash from Operations	$1,842,925	$3,795,277	$5,108,730

Additional Cash Received
Sales Tax, VAT, HST/GST Received	$0	$0	$0
New Current Borrowing	$0	$0	$0
New Other Liabilities (interest-free)	$0	$0	$0
New Long-term Liabilities	$500,000	$0	$0
Sales of Other Current Assets	$0	$0	$0
Sales of Long-term Assets	$0	$0	$0
New Investment Received	$0	$0	$0
Subtotal Cash Received	$2,342,925	$3,795,277	$5,108,730

Expenditures	2000	2001	2002

Expenditures from Operations
Cash Spending	$285,000	$310,000	$350,000
Bill Payments	$1,350,401	$2,477,107	$3,134,443
Subtotal Spent on Operations	$1,635,401	$2,787,107	$3,484,443

Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out	$0	$0	$0
Principal Repayment of Current Borrowing	$50,000	$0	$0
Other Liabilities Principal Repayment	$0	$0	$0
Long-term Liabilities Principal Repayment	$175,100	$166,800	$166,800
Purchase Other Current Assets	$0	$0	$0
Purchase Long-term Assets	$270,000	$200,000	$300,000
Dividends	$0	$0	$0
Subtotal Cash Spent	$2,130,501	$3,153,907	$3,951,243

Net Cash Flow	$212,424	$641,370	$1,157,487
Cash Balance	$272,424	$913,793	$2,071,280

7.5 Balance Sheet

The company’s projected balance sheets for 2000-2002 are presented below.

Pro Forma Balance Sheet
	2000	2001	2002
Assets

Current Assets
Cash	$272,424	$913,793	$2,071,280
Accounts Receivable	$247,075	$511,798	$663,069
Inventory	$37,290	$77,097	$99,658
Other Current Assets	$15,000	$15,000	$15,000
Total Current Assets	$571,789	$1,517,689	$2,849,006

Long-term Assets
Long-term Assets	$370,000	$570,000	$870,000
Accumulated Depreciation	$39,996	$69,996	$109,996
Total Long-term Assets	$330,004	$500,004	$760,004
Total Assets	$901,793	$2,017,693	$3,609,010

Liabilities and Capital	2000	2001	2002

Current Liabilities
Accounts Payable	$117,955	$211,267	$261,777
Current Borrowing	$0	$0	$0
Other Current Liabilities	$10,000	$10,000	$10,000
Subtotal Current Liabilities	$127,955	$221,267	$271,777

Long-term Liabilities	$374,900	$208,100	$41,300
Total Liabilities	$502,855	$429,367	$313,077

Paid-in Capital	$50,000	$50,000	$50,000
Retained Earnings	$130,000	$348,938	$1,538,325
Earnings	$218,938	$1,189,388	$1,707,608
Total Capital	$398,938	$1,588,325	$3,295,933
Total Liabilities and Capital	$901,793	$2,017,693	$3,609,010

Net Worth	$398,938	$1,588,325	$3,295,933

7.6 Business Ratios

The following table gives a detailed ratio analysis for Machine Tooling. The last column, Industry Profiles, is derived from the general machine industry, as described by the Standard Industry Classification (SIC) Index code 3569, General Industrial Machinery, NEC.

Ratio Analysis
	2000	2001	2002	Industry Profile
Sales Growth	30.67%	107.14%	29.56%	-0.50%

Percent of Total Assets
Accounts Receivable	27.40%	25.37%	18.37%	24.80%
Inventory	4.14%	3.82%	2.76%	26.10%
Other Current Assets	1.66%	0.74%	0.42%	24.20%
Total Current Assets	63.41%	75.22%	78.94%	75.10%
Long-term Assets	36.59%	24.78%	21.06%	24.90%
Total Assets	100.00%	100.00%	100.00%	100.00%

Current Liabilities	14.19%	10.97%	7.53%	35.70%
Long-term Liabilities	41.57%	10.31%	1.14%	18.50%
Total Liabilities	55.76%	21.28%	8.67%	54.20%
Net Worth	44.24%	78.72%	91.33%	45.80%

Percent of Sales
Sales	100.00%	100.00%	100.00%	100.00%
Gross Margin	61.73%	64.85%	67.32%	35.80%
Selling, General & Administrative Expenses	72.00%	52.86%	49.17%	20.80%
Advertising Expenses	2.27%	1.60%	1.33%	0.70%
Profit Before Interest and Taxes	17.41%	39.78%	43.76%	4.00%

Main Ratios
Current	4.47	6.86	10.48	2.20
Quick	4.18	6.51	10.12	1.15
Total Debt to Total Assets	55.76%	21.28%	8.67%	54.20%
Pre-tax Return on Net Worth	73.59%	99.84%	69.47%	7.30%
Pre-tax Return on Assets	32.55%	78.60%	63.44%	16.00%

Additional Ratios	2000	2001	2002
Net Profit Margin	11.17%	29.30%	32.46%	n.a
Return on Equity	54.88%	74.88%	51.81%	n.a

Activity Ratios
Accounts Receivable Turnover	5.95	5.95	5.95	n.a
Collection Days	59	45	54	n.a
Inventory Turnover	10.42	14.46	12.10	n.a
Accounts Payable Turnover	11.81	12.17	12.17	n.a
Payment Days	29	23	27	n.a
Total Asset Turnover	2.17	2.01	1.46	n.a

Debt Ratios
Debt to Net Worth	1.26	0.27	0.09	n.a
Current Liab. to Liab.	0.25	0.52	0.87	n.a

Liquidity Ratios
Net Working Capital	$443,834	$1,296,421	$2,577,229	n.a
Interest Coverage	7.15	55.40	184.60	n.a

Additional Ratios
Assets to Sales	0.46	0.50	0.69	n.a
Current Debt/Total Assets	14%	11%	8%	n.a
Acid Test	2.25	4.20	7.68	n.a
Sales/Net Worth	4.91	2.56	1.60	n.a
Dividend Payout	0.00	0.00	0.00	n.a

Sales Forecast
		Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Sales
Automation	0%	$18,000	$18,000	$18,000	$18,000	$18,000	$18,000	$18,000	$18,000	$19,000	$19,000	$19,000	$19,000
Production Machining	0%	$22,000	$22,000	$22,000	$22,000	$22,000	$22,000	$22,000	$22,000	$22,000	$23,000	$24,000	$25,000
Specialized Manufacturing	0%	$59,000	$59,000	$59,000	$59,000	$59,000	$59,000	$59,000	$59,000	$59,000	$59,000	$60,000	$60,000
Value Added Assembly	0%	$63,000	$63,000	$63,000	$63,000	$63,000	$63,000	$63,000	$63,000	$64,000	$64,000	$64,000	$64,000
Total Sales		$162,000	$162,000	$162,000	$162,000	$162,000	$162,000	$162,000	$162,000	$164,000	$165,000	$167,000	$168,000

Direct Cost of Sales		Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Automation		$3,700	$3,700	$3,700	$3,700	$3,700	$3,700	$3,700	$3,700	$3,900	$3,900	$3,900	$3,900
Production Machining		$4,500	$4,500	$4,500	$4,500	$4,500	$4,500	$4,500	$4,500	$4,500	$4,700	$4,700	$4,800
Specialized Manufacturing		$12,000	$12,000	$12,000	$12,000	$12,000	$12,000	$12,000	$12,000	$12,000	$12,000	$12,200	$12,200
Value Added Assembly		$12,900	$12,900	$12,900	$13,000	$13,000	$13,000	$13,000	$13,000	$13,000	$13,000	$13,000	$13,000
Subtotal Direct Cost of Sales		$33,100	$33,100	$33,100	$33,200	$33,200	$33,200	$33,200	$33,200	$33,400	$33,600	$33,800	$33,900

Personnel Plan
		Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Peter Newton, CEO	0%	$6,250	$6,250	$6,250	$6,250	$6,250	$6,250	$6,250	$6,250	$6,250	$6,250	$6,250	$6,250
John Abbot, President	0%	$6,250	$6,250	$6,250	$6,250	$6,250	$6,250	$6,250	$6,250	$6,250	$6,250	$6,250	$6,250
Chris Manuel, VP Marketing	0%	$5,000	$5,000	$5,000	$5,000	$5,000	$5,000	$5,000	$5,000	$5,000	$5,000	$5,000	$5,000
Production Manager	0%	$3,750	$3,750	$3,750	$3,750	$3,750	$3,750	$3,750	$3,750	$3,750	$3,750	$3,750	$3,750
Administrative Assistant	0%	$2,500	$2,500	$2,500	$2,500	$2,500	$2,500	$2,500	$2,500	$2,500	$2,500	$2,500	$2,500
Total People		15	15	15	15	15	15	15	15	15	15	15	15

Total Payroll		$23,750	$23,750	$23,750	$23,750	$23,750	$23,750	$23,750	$23,750	$23,750	$23,750	$23,750	$23,750

General Assumptions
	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Plan Month	1	2	3	4	5	6	7	8	9	10	11	12
Current Interest Rate	10.00%	10.00%	10.00%	10.00%	10.00%	10.00%	10.00%	10.00%	10.00%	10.00%	10.00%	10.00%
Long-term Interest Rate	10.00%	10.00%	10.00%	10.00%	10.00%	10.00%	10.00%	10.00%	10.00%	10.00%	10.00%	10.00%
Tax Rate	30.00%	25.00%	25.00%	25.00%	25.00%	25.00%	25.00%	25.00%	25.00%	25.00%	25.00%	25.00%
Other	0	0	0	0	0	0	0	0	0	0	0	0

Pro Forma Profit and Loss
		Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Sales		$162,000	$162,000	$162,000	$162,000	$162,000	$162,000	$162,000	$162,000	$164,000	$165,000	$167,000	$168,000
Direct Cost of Sales		$33,100	$33,100	$33,100	$33,200	$33,200	$33,200	$33,200	$33,200	$33,400	$33,600	$33,800	$33,900
Production Personnel		$29,170	$29,170	$29,170	$29,170	$29,170	$29,170	$29,170	$29,170	$29,170	$29,170	$29,170	$29,170
Total Cost of Sales		$62,270	$62,270	$62,270	$62,370	$62,370	$62,370	$62,370	$62,370	$62,570	$62,770	$62,970	$63,070

Gross Margin		$99,730	$99,730	$99,730	$99,630	$99,630	$99,630	$99,630	$99,630	$101,430	$102,230	$104,030	$104,930
Gross Margin %		61.56%	61.56%	61.56%	61.50%	61.50%	61.50%	61.50%	61.50%	61.85%	61.96%	62.29%	62.46%


Expenses
Payroll		$23,750	$23,750	$23,750	$23,750	$23,750	$23,750	$23,750	$23,750	$23,750	$23,750	$23,750	$23,750
Marketing/Promotion		$13,900	$13,900	$14,000	$13,900	$13,900	$14,000	$13,900	$13,900	$14,050	$14,000	$14,100	$14,350
Depreciation		$833	$833	$833	$833	$833	$833	$833	$833	$833	$833	$833	$833
Quality Assurance		$7,700	$7,700	$7,700	$7,700	$7,700	$7,700	$7,700	$7,700	$7,900	$8,000	$8,100	$8,200
General & Administrative		$8,000	$8,000	$8,000	$8,000	$8,000	$8,000	$8,000	$8,000	$8,000	$8,000	$8,000	$8,000
Manufacturing & Engineering		$10,800	$10,800	$10,800	$10,800	$10,800	$10,800	$10,800	$10,800	$10,800	$10,800	$10,800	$10,800
Machining & Systems Building		$7,200	$7,200	$7,200	$7,200	$7,200	$7,200	$7,200	$7,200	$7,200	$7,200	$7,200	$7,200
Payroll Taxes	15%	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0
Other		$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0

Total Operating Expenses		$72,183	$72,183	$72,283	$72,183	$72,183	$72,283	$72,183	$72,183	$72,533	$72,583	$72,783	$73,133

Profit Before Interest and Taxes		$27,547	$27,547	$27,447	$27,447	$27,447	$27,347	$27,447	$27,447	$28,897	$29,647	$31,247	$31,797
EBITDA		$28,380	$28,380	$28,280	$28,280	$28,280	$28,180	$28,280	$28,280	$29,730	$30,480	$32,080	$32,630
Interest Expense		$2,917	$5,000	$4,958	$4,500	$4,458	$4,069	$4,028	$3,986	$3,597	$3,555	$3,513	$3,124
Taxes Incurred		$7,389	$5,637	$5,622	$5,737	$5,747	$5,819	$5,855	$5,865	$6,325	$6,523	$6,933	$7,168

Net Profit		$17,241	$16,910	$16,867	$17,210	$17,242	$17,458	$17,565	$17,596	$18,975	$19,569	$20,800	$21,505
Net Profit/Sales		10.64%	10.44%	10.41%	10.62%	10.64%	10.78%	10.84%	10.86%	11.57%	11.86%	12.46%	12.80%

Pro Forma Cash Flow
		Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Cash Received

Cash from Operations
Cash Sales		$40,500	$40,500	$40,500	$40,500	$40,500	$40,500	$40,500	$40,500	$41,000	$41,250	$41,750	$42,000
Cash from Receivables		$65,000	$69,050	$121,500	$121,500	$121,500	$121,500	$121,500	$121,500	$121,500	$121,550	$123,025	$123,800
Subtotal Cash from Operations		$105,500	$109,550	$162,000	$162,000	$162,000	$162,000	$162,000	$162,000	$162,500	$162,800	$164,775	$165,800

Additional Cash Received
Sales Tax, VAT, HST/GST Received	0.00%	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0
New Current Borrowing		$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0
New Other Liabilities (interest-free)		$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0
New Long-term Liabilities		$250,000	$250,000	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0
Sales of Other Current Assets		$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0
Sales of Long-term Assets		$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0
New Investment Received		$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0
Subtotal Cash Received		$355,500	$359,550	$162,000	$162,000	$162,000	$162,000	$162,000	$162,000	$162,500	$162,800	$164,775	$165,800

Expenditures		Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec

Expenditures from Operations
Cash Spending		$23,750	$23,750	$23,750	$23,750	$23,750	$23,750	$23,750	$23,750	$23,750	$23,750	$23,750	$23,750
Bill Payments		$77,903	$87,507	$100,701	$120,543	$120,312	$120,168	$119,955	$119,851	$119,849	$120,675	$121,094	$121,843
Subtotal Spent on Operations		$101,653	$111,257	$124,451	$144,293	$144,062	$143,918	$143,705	$143,601	$143,599	$144,425	$144,844	$145,593

Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out		$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0
Principal Repayment of Current Borrowing		$0	$0	$5,000	$5,000	$5,000	$5,000	$5,000	$5,000	$5,000	$5,000	$5,000	$5,000
Other Liabilities Principal Repayment		$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0
Long-term Liabilities Principal Repayment		$0	$0	$0	$50,000	$0	$41,700	$0	$0	$41,700	$0	$0	$41,700
Purchase Other Current Assets		$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0
Purchase Long-term Assets		$0	$0	$0	$0	$120,000	$0	$150,000	$0	$0	$0	$0	$0
Dividends		$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0	$0
Subtotal Cash Spent		$101,653	$111,257	$129,451	$199,293	$269,062	$190,618	$298,705	$148,601	$190,299	$149,425	$149,844	$192,293

Net Cash Flow		$253,847	$248,293	$32,549	($37,293)	($107,062)	($28,618)	($136,705)	$13,399	($27,799)	$13,375	$14,931	($26,493)
Cash Balance		$313,847	$562,140	$594,689	$557,396	$450,334	$421,716	$285,011	$298,410	$270,611	$283,985	$298,917	$272,424

Pro Forma Balance Sheet
		Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
Assets	Starting Balances

Current Assets
Cash	$60,000	$313,847	$562,140	$594,689	$557,396	$450,334	$421,716	$285,011	$298,410	$270,611	$283,985	$298,917	$272,424
Accounts Receivable	$130,000	$186,500	$238,950	$238,950	$238,950	$238,950	$238,950	$238,950	$238,950	$240,450	$242,650	$244,875	$247,075
Inventory	$90,000	$56,900	$36,410	$36,410	$36,520	$36,520	$36,520	$36,520	$36,520	$36,740	$36,960	$37,180	$37,290
Other Current Assets	$15,000	$15,000	$15,000	$15,000	$15,000	$15,000	$15,000	$15,000	$15,000	$15,000	$15,000	$15,000	$15,000
Total Current Assets	$295,000	$572,247	$852,500	$885,049	$847,866	$740,804	$712,186	$575,481	$588,880	$562,801	$578,595	$595,972	$571,789

Long-term Assets
Long-term Assets	$100,000	$100,000	$100,000	$100,000	$100,000	$220,000	$220,000	$370,000	$370,000	$370,000	$370,000	$370,000	$370,000
Accumulated Depreciation	$30,000	$30,833	$31,666	$32,499	$33,332	$34,165	$34,998	$35,831	$36,664	$37,497	$38,330	$39,163	$39,996
Total Long-term Assets	$70,000	$69,167	$68,334	$67,501	$66,668	$185,835	$185,002	$334,169	$333,336	$332,503	$331,670	$330,837	$330,004
Total Assets	$365,000	$641,414	$920,834	$952,550	$914,534	$926,639	$897,188	$909,650	$922,216	$895,304	$910,265	$926,809	$901,793

Liabilities and Capital		Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec

Current Liabilities
Accounts Payable	$75,000	$84,173	$96,683	$116,532	$116,306	$116,170	$115,960	$115,857	$115,827	$116,640	$117,032	$117,776	$117,955
Current Borrowing	$50,000	$50,000	$50,000	$45,000	$40,000	$35,000	$30,000	$25,000	$20,000	$15,000	$10,000	$5,000	$0
Other Current Liabilities	$10,000	$10,000	$10,000	$10,000	$10,000	$10,000	$10,000	$10,000	$10,000	$10,000	$10,000	$10,000	$10,000
Subtotal Current Liabilities	$135,000	$144,173	$156,683	$171,532	$166,306	$161,170	$155,960	$150,857	$145,827	$141,640	$137,032	$132,776	$127,955

Long-term Liabilities	$50,000	$300,000	$550,000	$550,000	$500,000	$500,000	$458,300	$458,300	$458,300	$416,600	$416,600	$416,600	$374,900
Total Liabilities	$185,000	$444,173	$706,683	$721,532	$666,306	$661,170	$614,260	$609,157	$604,127	$558,240	$553,632	$549,376	$502,855

Paid-in Capital	$50,000	$50,000	$50,000	$50,000	$50,000	$50,000	$50,000	$50,000	$50,000	$50,000	$50,000	$50,000	$50,000
Retained Earnings	$130,000	$130,000	$130,000	$130,000	$130,000	$130,000	$130,000	$130,000	$130,000	$130,000	$130,000	$130,000	$130,000
Earnings	$0	$17,241	$34,151	$51,018	$68,228	$85,470	$102,928	$120,493	$138,089	$157,064	$176,633	$197,433	$218,938
Total Capital	$180,000	$197,241	$214,151	$231,018	$248,228	$265,470	$282,928	$300,493	$318,089	$337,064	$356,633	$377,433	$398,938
Total Liabilities and Capital	$365,000	$641,414	$920,834	$952,550	$914,534	$926,639	$897,188	$909,650	$922,216	$895,304	$910,265	$926,809	$901,793

Net Worth	$180,000	$197,241	$214,151	$231,018	$248,228	$265,470	$282,928	$300,493	$318,089	$337,064	$356,633	$377,433	$398,938

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How To Start A Business In 11 Steps (2024 Guide)

Updated: Apr 7, 2024, 1:44pm

How To Start A Business In 11 Steps (2024 Guide)

Before you begin: get in the right mindset, 1. determine your business concept, 2. research your competitors and market, 3. create your business plan, 4. choose your business structure, 5. register your business and get licenses, 6. get your finances in order, 7. fund your business, 8. apply for business insurance, 9. get the right business tools, 10. market your business, 11. scale your business, what are the best states to start a business, bottom line, frequently asked questions (faqs).

Starting a business is one of the most exciting and rewarding experiences you can have. But where do you begin? There are several ways to approach creating a business, along with many important considerations. To help take the guesswork out of the process and improve your chances of success, follow our comprehensive guide on how to start a business. We’ll walk you through each step of the process, from defining your business idea to registering, launching and growing your business.

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The public often hears about overnight successes because they make for a great headline. However, it’s rarely that simple—they don’t see the years of dreaming, building and positioning before a big public launch. For this reason, remember to focus on your business journey and don’t measure your success against someone else’s.

Consistency Is Key

New business owners tend to feed off their motivation initially but get frustrated when that motivation wanes. This is why it’s essential to create habits and follow routines that power you through when motivation goes away.

Take the Next Step

Some business owners dive in headfirst without looking and make things up as they go along. Then, there are business owners who stay stuck in analysis paralysis and never start. Perhaps you’re a mixture of the two—and that’s right where you need to be. The best way to accomplish any business or personal goal is to write out every possible step it takes to achieve the goal. Then, order those steps by what needs to happen first. Some steps may take minutes while others take a long time. The point is to always take the next step.

Most business advice tells you to monetize what you love, but it misses two other very important elements: it needs to be profitable and something you’re good at. For example, you may love music, but how viable is your business idea if you’re not a great singer or songwriter? Maybe you love making soap and want to open a soap shop in your small town that already has three close by—it won’t be easy to corner the market when you’re creating the same product as other nearby stores.

If you don’t have a firm idea of what your business will entail, ask yourself the following questions:

What do you love to do?
What do you hate to do?
Can you think of something that would make those things easier?
What are you good at?
What do others come to you for advice about?
If you were given ten minutes to give a five-minute speech on any topic, what would it be?
What’s something you’ve always wanted to do, but lacked resources for?

These questions can lead you to an idea for your business. If you already have an idea, they might help you expand it. Once you have your idea, measure it against whether you’re good at it and if it’s profitable.

Your business idea also doesn’t have to be the next Scrub Daddy or Squatty Potty. Instead, you can take an existing product and improve upon it. You can also sell a digital product so there’s little overhead.

What Kind of Business Should You Start?

Before you choose the type of business to start, there are some key things to consider:

What type of funding do you have?
How much time do you have to invest in your business?
Do you prefer to work from home or at an office or workshop?
What interests and passions do you have?
Can you sell information (such as a course), rather than a product?
What skills or expertise do you have?
How fast do you need to scale your business?
What kind of support do you have to start your business?
Are you partnering with someone else?
Does the franchise model make more sense to you?

Consider Popular Business Ideas

Not sure what business to start? Consider one of these popular business ideas:

Start a Franchise
Start a Blog
Start an Online Store
Start a Dropshipping Business
Start a Cleaning Business
Start a Bookkeeping Business
Start a Clothing Business
Start a Landscaping Business
Start a Consulting Business
Start a Photography Business
Start a Vending Machine Business

Most entrepreneurs spend more time on their products than they do getting to know the competition. If you ever apply for outside funding, the potential lender or partner wants to know: what sets you (or your business idea) apart? If market analysis indicates your product or service is saturated in your area, see if you can think of a different approach. Take housekeeping, for example—rather than general cleaning services, you might specialize in homes with pets or focus on garage cleanups.

Primary Research

The first stage of any competition study is primary research, which entails obtaining data directly from potential customers rather than basing your conclusions on past data. You can use questionnaires, surveys and interviews to learn what consumers want. Surveying friends and family isn’t recommended unless they’re your target market. People who say they’d buy something and people who do are very different. The last thing you want is to take so much stock in what they say, create the product and flop when you try to sell it because all of the people who said they’d buy it don’t because the product isn’t something they’d buy.

Secondary Research

Utilize existing sources of information, such as census data, to gather information when you do secondary research. The current data may be studied, compiled and analyzed in various ways that are appropriate for your needs but it may not be as detailed as primary research.

Conduct a SWOT Analysis

SWOT stands for strengths, weaknesses, opportunities and threats. Conducting a SWOT analysis allows you to look at the facts about how your product or idea might perform if taken to market, and it can also help you make decisions about the direction of your idea. Your business idea might have some weaknesses that you hadn’t considered or there may be some opportunities to improve on a competitor’s product.

Asking pertinent questions during a SWOT analysis can help you identify and address weaknesses before they tank your new business.

A business plan is a dynamic document that serves as a roadmap for establishing a new business. This document makes it simple for potential investors, financial institutions and company management to understand and absorb. Even if you intend to self-finance, a business plan can help you flesh out your idea and spot potential problems. When writing a well-rounded business plan, include the following sections:

Executive summary: The executive summary should be the first item in the business plan, but it should be written last. It describes the proposed new business and highlights the goals of the company and the methods to achieve them.
Company description: The company description covers what problems your product or service solves and why your business or idea is best. For example, maybe your background is in molecular engineering, and you’ve used that background to create a new type of athletic wear—you have the proper credentials to make the best material.
Market analysis: This section of the business plan analyzes how well a company is positioned against its competitors. The market analysis should include target market, segmentation analysis, market size, growth rate, trends and a competitive environment assessment.
Organization and structure: Write about the type of business organization you expect, what risk management strategies you propose and who will staff the management team. What are their qualifications? Will your business be a single-member limited liability company (LLC) or a corporation ?
Mission and goals: This section should contain a brief mission statement and detail what the business wishes to accomplish and the steps to get there. These goals should be SMART (specific, measurable, action-orientated, realistic and time-bound).
Products or services: This section describes how your business will operate. It includes what products you’ll offer to consumers at the beginning of the business, how they compare to existing competitors, how much your products cost, who will be responsible for creating the products, how you’ll source materials and how much they cost to make.
Background summary: This portion of the business plan is the most time-consuming to write. Compile and summarize any data, articles and research studies on trends that could positively and negatively affect your business or industry.
Marketing plan: The marketing plan identifies the characteristics of your product or service, summarizes the SWOT analysis and analyzes competitors. It also discusses how you’ll promote your business, how much money will be spent on marketing and how long the campaign is expected to last.
Financial plan: The financial plan is perhaps the core of the business plan because, without money, the business will not move forward. Include a proposed budget in your financial plan along with projected financial statements, such as an income statement, a balance sheet and a statement of cash flows. Usually, five years of projected financial statements are acceptable. This section is also where you should include your funding request if you’re looking for outside funding.

Learn more: Download our free simple business plan template .

Come Up With an Exit Strategy

An exit strategy is important for any business that is seeking funding because it outlines how you’ll sell the company or transfer ownership if you decide to retire or move on to other projects. An exit strategy also allows you to get the most value out of your business when it’s time to sell. There are a few different options for exiting a business, and the best option for you depends on your goals and circumstances.

The most common exit strategies are:

Selling the business to another party
Passing the business down to family members
Liquidating the business assets
Closing the doors and walking away

Develop a Scalable Business Model

As your small business grows, it’s important to have a scalable business model so that you can accommodate additional customers without incurring additional costs. A scalable business model is one that can be replicated easily to serve more customers without a significant increase in expenses.

Some common scalable business models are:

Subscription-based businesses
Businesses that sell digital products
Franchise businesses
Network marketing businesses

Start Planning for Taxes

One of the most important things to do when starting a small business is to start planning for taxes. Taxes can be complex, and there are several different types of taxes you may be liable for, including income tax, self-employment tax, sales tax and property tax. Depending on the type of business you’re operating, you may also be required to pay other taxes, such as payroll tax or unemployment tax.

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When structuring your business, it’s essential to consider how each structure impacts the amount of taxes you owe, daily operations and whether your personal assets are at risk.

An LLC limits your personal liability for business debts. LLCs can be owned by one or more people or companies and must include a registered agent . These owners are referred to as members.

LLCs offer liability protection for the owners
They’re one of the easiest business entities to set up
You can have a single-member LLC
You may be required to file additional paperwork with your state on a regular basis
LLCs can’t issue stock
You’ll need to pay annual filing fees to your state

Limited Liability Partnership (LLP)

An LLP is similar to an LLC but is typically used for licensed business professionals such as an attorney or accountant. These arrangements require a partnership agreement.

Partners have limited liability for the debts and actions of the LLP
LLPs are easy to form and don’t require much paperwork
There’s no limit to the number of partners in an LLP
Partners are required to actively take part in the business
LLPs can’t issue stock
All partners are personally liable for any malpractice claims against the business

Sole Proprietorship

If you start a solo business, you might consider a sole proprietorship . The company and the owner, for legal and tax purposes, are considered the same. The business owner assumes liability for the business. So, if the business fails, the owner is personally and financially responsible for all business debts.

Sole proprietorships are easy to form
There’s no need to file additional paperwork with your state
You’re in complete control of the business
You’re personally liable for all business debts
It can be difficult to raise money for a sole proprietorship
The business may have a limited lifespan

Corporation

A corporation limits your personal liability for business debts just as an LLC does. A corporation can be taxed as a C corporation (C-corp) or an S corporation (S-corp). S-corp status offers pass-through taxation to small corporations that meet certain IRS requirements. Larger companies and startups hoping to attract venture capital are usually taxed as C-corps.

Corporations offer liability protection for the owners
The life span of a corporation is not limited
A corporation can have an unlimited number of shareholders
Corporations are subject to double taxation
They’re more expensive and complicated to set up than other business structures
The shareholders may have limited liability

Before you decide on a business structure, discuss your situation with a small business accountant and possibly an attorney, as each business type has different tax treatments that could affect your bottom line.

Helpful Resources

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There are several legal issues to address when starting a business after choosing the business structure. The following is a good checklist of items to consider when establishing your business:

Choose Your Business Name

Make it memorable but not too difficult. Choose the same domain name, if available, to establish your internet presence. A business name cannot be the same as another registered company in your state, nor can it infringe on another trademark or service mark that is already registered with the United States Patent and Trademark Office (USPTO).

Business Name vs. DBA

There are business names, and then there are fictitious business names known as “Doing Business As” or DBA. You may need to file a DBA if you’re operating under a name that’s different from the legal name of your business. For example, “Mike’s Bike Shop” is doing business as “Mike’s Bikes.” The legal name of the business is “Mike’s Bike Shop,” and “Mike’s Bikes” is the DBA.

You may need to file a DBA with your state, county or city government offices. The benefits of a DBA include:

It can help you open a business bank account under your business name
A DBA can be used as a “trade name” to brand your products or services
A DBA can be used to get a business license

Register Your Business and Obtain an EIN

You’ll officially create a corporation, LLC or other business entity by filing forms with your state’s business agency―usually the Secretary of State. As part of this process, you’ll need to choose a registered agent to accept legal documents on behalf of your business. You’ll also pay a filing fee. The state will send you a certificate that you can use to apply for licenses, a tax identification number (TIN) and business bank accounts.

Next, apply for an employer identification number (EIN) . All businesses, other than sole proprietorships with no employees, must have a federal employer identification number. Submit your application to the IRS and you’ll typically receive your number in minutes.

Get Appropriate Licenses and Permits

Legal requirements are determined by your industry and jurisdiction. Most businesses need a mixture of local, state and federal licenses to operate. Check with your local government office (and even an attorney) for licensing information tailored to your area.

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Click on the state below to get started.

Open a Business Bank Account

Keep your business and personal finances separate. Here’s how to choose a business checking account —and why separate business accounts are essential. When you open a business bank account, you’ll need to provide your business name and your business tax identification number (EIN). This business bank account can be used for your business transactions, such as paying suppliers or invoicing customers. Most times, a bank will require a separate business bank account to issue a business loan or line of credit.

Hire a Bookkeeper or Get Accounting Software

If you sell a product, you need an inventory function in your accounting software to manage and track inventory. The software should have ledger and journal entries and the ability to generate financial statements.

Some software programs double as bookkeeping tools. These often include features such as check writing and managing receivables and payables. You can also use this software to track your income and expenses, generate invoices, run reports and calculate taxes.

There are many bookkeeping services available that can do all of this for you, and more. These services can be accessed online from any computer or mobile device and often include features such as bank reconciliation and invoicing. Check out the best accounting software for small business, or see if you want to handle the bookkeeping yourself.

Determine Your Break-Even Point

Before you fund your business, you must get an idea of your startup costs. To determine these, make a list of all the physical supplies you need, estimate the cost of any professional services you will require, determine the price of any licenses or permits required to operate and calculate the cost of office space or other real estate. Add in the costs of payroll and benefits, if applicable.

Businesses can take years to turn a profit, so it’s better to overestimate the startup costs and have too much money than too little. Many experts recommend having enough cash on hand to cover six months of operating expenses.

When you know how much you need to get started with your business, you need to know the point at which your business makes money. This figure is your break-even point.

In contrast, the contribution margin = total sales revenue – cost to make product

For example, let’s say you’re starting a small business that sells miniature birdhouses for fairy gardens. You have determined that it will cost you $500 in startup costs. Your variable costs are $0.40 per birdhouse produced, and you sell them for $1.50 each.

Let’s write these out so it’s easy to follow:

This means that you need to sell at least 456 units just to cover your costs. If you can sell more than 456 units in your first month, you will make a profit.

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There are many different ways to fund your business—some require considerable effort, while others are easier to obtain. Two categories of funding exist: internal and external.

Internal funding includes:

Personal savings
Credit cards
Funds from friends and family

If you finance the business with your own funds or with credit cards, you have to pay the debt on the credit cards and you’ve lost a chunk of your wealth if the business fails. By allowing your family members or friends to invest in your business, you are risking hard feelings and strained relationships if the company goes under. Business owners who want to minimize these risks may consider external funding.

External funding includes:

Small business loans
Small business grants
Angel investors
Venture capital
Crowdfunding

Small businesses may have to use a combination of several sources of capital. Consider how much money is needed, how long it will take before the company can repay it and how risk-tolerant you are. No matter which source you use, plan for profit. It’s far better to take home six figures than make seven figures and only keep $80,000 of it.

Funding ideas include:

Invoice factoring: With invoice factoring , you can sell your unpaid invoices to a third party at a discount.
Business lines of credit: Apply for a business line of credit , which is similar to a personal line of credit. The credit limit and interest rate will be based on your business’s revenue, credit score and financial history.
Equipment financing: If you need to purchase expensive equipment for your business, you can finance it with a loan or lease.
Small Business Administration (SBA) microloans: Microloans are up to $50,000 loans that can be used for working capital, inventory or supplies and machinery or equipment.
Grants: The federal government offers grants for businesses that promote innovation, export growth or are located in historically disadvantaged areas. You can also find grants through local and regional organizations.
Crowdfunding: With crowdfunding , you can raise money from a large group of people by soliciting donations or selling equity in your company.

Choose the right funding source for your business by considering the amount of money you need, the time frame for repayment and your tolerance for risk.

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You need to have insurance for your business , even if it’s a home-based business or you don’t have any employees. The type of insurance you need depends on your business model and what risks you face. You might need more than one type of policy, and you might need additional coverage as your business grows. In most states, workers’ compensation insurance is required by law if you have employees.

Work With an Agent To Get Insured

An insurance agent can help determine what coverages are appropriate for your business and find policies from insurers that offer the best rates. An independent insurance agent represents several different insurers, so they can shop around for the best rates and coverage options.

Basic Types of Business Insurance Coverage

Liability insurance protects your business against third-party claims of bodily injury, property damage and personal injury such as defamation or false advertising.
Property insurance covers the physical assets of your business, including your office space, equipment and inventory.
Business interruption insurance pays for the loss of income if your business is forced to close temporarily due to a covered event such as a natural disaster.
Product liability insurance protects against claims that your products caused bodily injury or property damage.
Employee practices liability insurance covers claims from employees alleging discrimination, sexual harassment or other wrongful termination.
Workers’ compensation insurance covers medical expenses and income replacement for employees who are injured on the job.
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Business tools can help make your life easier and make your business run more smoothly. The right tools can help you save time, automate tasks and make better decisions.

Consider the following tools in your arsenal:

Accounting software : Track your business income and expenses, prepare financial statements and file taxes. Examples include QuickBooks and FreshBooks.
Customer relationship management (CRM) software : This will help you manage your customer relationships, track sales and marketing data and automate tasks like customer service and follow-ups. Examples include Zoho CRM and monday.com.
Project management software : Plan, execute and track projects. It can also be used to manage employee tasks and allocate resources. Examples include Airtable and ClickUp.
Credit card processor : This will allow you to accept credit card payments from customers. Examples include Stripe and PayPal.
Point of sale (POS) : A system that allows you to process customer payments. Some accounting software and CRM software have POS features built-in. Examples include Clover and Lightspeed.
Virtual private network (VPN) : Provides a secure, private connection between your computer and the internet. This is important for businesses that handle sensitive data. Examples include NordVPN and ExpressVPN.
Merchant services : When customers make a purchase, the money is deposited into your business account. You can also use merchant services to set up recurring billing or subscription payments. Examples include Square and Stripe.
Email hosting : This allows you to create a professional email address with your own domain name. Examples include G Suite and Microsoft Office 365.

Many business owners spend so much money creating their products that there isn’t a marketing budget by the time they’ve launched. Alternatively, they’ve spent so much time developing the product that marketing is an afterthought.

Create a Website

Even if you’re a brick-and-mortar business, a web presence is essential. Creating a website doesn’t take long, either—you can have one done in as little as a weekend. You can make a standard informational website or an e-commerce site where you sell products online. If you sell products or services offline, include a page on your site where customers can find your locations and hours. Other pages to add include an “About Us” page, product or service pages, frequently asked questions (FAQs), a blog and contact information.

Optimize Your Site for SEO

After getting a website or e-commerce store, focus on optimizing it for search engines (SEO). This way, when a potential customer searches for specific keywords for your products, the search engine can point them to your site. SEO is a long-term strategy, so don’t expect a ton of traffic from search engines initially—even if you’re using all the right keywords.

Create Relevant Content

Provide quality digital content on your site that makes it easy for customers to find the correct answers to their questions. Content marketing ideas include videos, customer testimonials, blog posts and demos. Consider content marketing one of the most critical tasks on your daily to-do list. This is used in conjunction with posting on social media.

Get Listed in Online Directories

Customers use online directories like Yelp, Google My Business and Facebook to find local businesses. Some city halls and chambers of commerce have business directories too. Include your business in as many relevant directories as possible. You can also create listings for your business on specific directories that focus on your industry.

Develop a Social Media Strategy

Your potential customers are using social media every day—you need to be there too. Post content that’s interesting and relevant to your audience. Use social media to drive traffic back to your website where customers can learn more about what you do and buy your products or services.

You don’t necessarily need to be on every social media platform available. However, you should have a presence on Facebook and Instagram because they offer e-commerce features that allow you to sell directly from your social media accounts. Both of these platforms have free ad training to help you market your business.

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To scale your business, you need to grow your customer base and revenue. This can be done by expanding your marketing efforts, improving your product or service, collaborating with other creators or adding new products or services that complement what you already offer.

Think about ways you can automate or outsource certain tasks so you can focus on scaling the business. For example, if social media marketing is taking up too much of your time, consider using a platform such as Hootsuite to help you manage your accounts more efficiently. You can also consider outsourcing the time-consumer completely.

You can also use technology to automate certain business processes, including accounting, email marketing and lead generation. Doing this will give you more time to focus on other aspects of your business.

When scaling your business, it’s important to keep an eye on your finances and make sure you’re still profitable. If you’re not making enough money to cover your costs, you need to either reduce your expenses or find ways to increase your revenue.

Build a Team

As your business grows, you’ll need to delegate tasks and put together a team of people who can help you run the day-to-day operations. This might include hiring additional staff, contractors or freelancers.

Resources for building a team include:

Hiring platforms: To find the right candidates, hiring platforms, such as Indeed and Glassdoor, can help you post job descriptions, screen résumés and conduct video interviews.
Job boards: Job boards such as Craigslist and Indeed allow you to post open positions for free.
Social media: You can also use social media platforms such as LinkedIn and Facebook to find potential employees.
Freelance platforms: Using Upwork, Freelancer and Fiverr can help you find talented freelancers for one-time or short-term projects. You can also outsource certain tasks, such as customer service, social media marketing or bookkeeping.

You might also consider partnering with other businesses in your industry. For example, if you’re a wedding planner, you could partner with a florist, photographer, catering company or venue. This way, you can offer your customers a one-stop shop for all their wedding needs. Another example is an e-commerce store that partners with a fulfillment center. This type of partnership can help you save money on shipping and storage costs, and it can also help you get your products to your customers faster.

To find potential partnerships, search for businesses in your industry that complement what you do. For example, if you’re a web designer, you could partner with a digital marketing agency.

You can also search for businesses that serve the same target market as you but offer different products or services. For example, if you sell women’s clothing, you could partner with a jewelry store or a hair salon.

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To rank the best states to start a business in 2024, Forbes Advisor analyzed 18 key metrics across five categories to determine which states are the best and worst to start a business in. Our ranking takes into consideration factors that impact businesses and their ability to succeed, such as business costs, business climate, economy, workforce and financial accessibility in each state. Check out the full report .

Starting a small business takes time, effort and perseverance. But if you’re willing to put in the work, it can be a great way to achieve your dreams and goals. Be sure to do your research, create a solid business plan and pivot along the way. Once you’re operational, don’t forget to stay focused and organized so you can continue to grow your business.

How do I start a small business with no money?

There are several funding sources for brand-new businesses and most require a business plan to secure it. These include the SBA , private grants, angel investors, crowdfunding and venture capital.

What is the best business structure?

The best business structure for your business will depend entirely on what kind of company you form, your industry and what you want to accomplish. But any successful business structure will be one that will help your company set realistic goals and follow through on set tasks.

Do I need a business credit card?

You don’t need one, but a business credit card can be helpful for new small businesses. It allows you to start building business credit, which can help you down the road when you need to take out a loan or line of credit. Additionally, business credit cards often come with rewards and perks that can save you money on business expenses.

Do I need a special license or permit to start a small business?

The answer to this question will depend on the type of business you want to start and where you’re located. Some businesses, such as restaurants, will require a special permit or license to operate. Others, such as home daycare providers, may need to register with the state.

How much does it cost to create a business?

The cost of starting a business will vary depending on the size and type of company you want to create. For example, a home-based business will be less expensive to start than a brick-and-mortar store. Additionally, the cost of starting a business will increase if you need to rent or buy commercial space, hire employees or purchase inventory. You could potentially get started for free by dropshipping or selling digital goods.

How do I get a loan for a new business?

The best way to get a loan for a new business is to approach banks or other financial institutions and provide them with a business plan and your financial history. You can also look into government-backed loans, such as those offered by the SBA. Startups may also be able to get loans from alternative lenders, including online platforms such as Kiva.

Do I need a business degree to start a business?

No, you don’t need a business degree to start a business. However, acquiring a degree in business or a related field can provide you with the understanding and ability to run an effective company. Additionally, you may want to consider taking some business courses if you don’t have a degree to learn more about starting and running a business. You can find these online and at your local Small Business Administration office.

What are some easy businesses to start?

One of the easiest businesses to start also has the lowest overhead: selling digital goods. This can include items such as e-books, online courses, audio files or software. If you have expertise in a particular area or niche, this is a great option for you. Dropshipping is also a great option because you don’t have to keep inventory. You could also buy wholesale products or create your own. Once you create your product, you can sell it through your own website or third-party platforms such as Amazon or Etsy.

What is the most profitable type of business?

There is no one answer to this question because the most profitable type of business will vary depending on a number of factors, such as your industry, location, target market and business model. However, some businesses tend to be more profitable than others, such as luxury goods, high-end services, business-to-business companies and subscription-based businesses. If you’re not sure what type of business to start, consider your strengths and interests, as well as the needs of your target market, to help you choose a profitable business idea.

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Katherine Haan is a small business owner with nearly two decades of experience helping other business owners increase their incomes.

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Guide To Starting A Profitable Equipment Rental Company In 2021

Sept. 18, 2021

The equipment rental industry has outgrown the overall construction industry over the past few decades. Learn how you can start your own equipment rental company.

Equipment Rental Industry Overview

Owning and operating an equipment rental business can be very rewarding and profitable. Many equipment rental business owners started out with one used machine, and gradually built up their businesses through hard work, great customer service and maintaining a fresh and healthy equipment fleet.

Starting an equipment rental company is not as expensive or encumbering as you would think. With some careful planning, initial capital, and passion for the industry, you can start your own equipment rental company in a few weeks.

The equipment rental industry has grown at about 5% per year over the past few decades. The outlook for the industry is very positive, with many industry experts forecasting 4-5% annual growth over the coming years. The long-term shift by contractors to rent more equipment is causing the equipment rental industry to outgrow the overall construction industry.

Equipment Rental Industry Market Share

The equipment rental industry is very fragmented - this means that the vast majority of industry sales are generated by small and medium-sized rental companies. According to the American Rental Association (ARA), the top 10 equipment rental companies have about 35% market share, and the top 3 companies have about 25% market share.

The largest North American equipment rental companies include United Rentals , Sunbelt Rentals , Herc Rentals , Home Depot Rentals , and Ahern Rentals . The total annual industry sales are over $50 billion, and the long-term growth rate is about 5% per year.

Equipment Rental Market Share Pie Chart Source United Rentals

Source: United Rentals and Equipment Radar Takeaway: The top three industry players have a 25% combined market share. This means the industry is very fragmented and comprised mostly of small and medium-size companies.

Combined US Equipment Rental Industry Market Size

Source: United Rentals , American Rental Association (ARA) , Rental Equipment Register (RER) , and US Census Bureau Takeaway: The US Equipment Rental industry size is over $50 billion, with a growth rate of about 5% each year.

Source: United Rentals, ARA, RER, and US Census Bureau Takeaway: The US Equipment Rental industry has outgrown overall construction spending since 1997.

Equipment Rental Covers More Than Just Construction Machinery

Many equipment rental companies augment their equipment fleets to include general tools, HVAC, power generation, and event (party, wedding, concerts, etc) equipment.

The ARA segments the rental industry into three primary categories:

Construction and Industrial Equipment: This category primarily serves construction firms and contractors. Equipment typically includes earthmoving equipment such as excavators, loaders, backhoes and compaction machinery, light towers, aerial work platforms. This segment can also include road infrastructure, energy projects, commercial buildings, malls, demolition and more.
DIY General Tool Equipment: This category includes equipment typically rented by professional contractors and do-it-yourself (DIY) homeowners. Equipment includes small and light construction equipment such as power tools, air compressors, aerators, lawn tractors, compact tractors, skid-steer loaders and small excavators, etc.
Party/Wedding/Event Equipment: This category includes equipment rented by consumers, homeowners and businesses for parties and events. Items can include tents, tables, chairs, lights, dance floors, decorations, linens, plates and glassware, portable restrooms, concession equipment, inflatables (moonwalks), and other furniture. Projects can range from large corporate events to small family gatherings.

When you start your rental company, you can choose to serve one or more categories. Many established rental companies offer an all-in-one stop rental offering. You should research your local market demand for each category to understand which suits your local market best.

Aerial lifts and earthmoving equipment tend to be popular categories for equipment rental companies. When you choose your categories, you should study the local rental rates, seasonality (demand fluctuates through the year based on weather and construction patterns) and competition.

Herc Rentals Equipment Fleet Mix

Herc Rentals Equipment Fleet Composition Mix

Source: Herc Rentals Takeaway: Large rental companies such as Herc Rentals have diverse fleets. Both United Rentals and Herc Rentals have placed increased focus on expanding into the specialty rentals category over the past few years.

Equipment Rental Customers

The equipment and event rental industry offers customers the opportunity to gain the benefit of using goods (from excavators and aerial lifts to party tents) for a defined time. Customers are attracted to rentals instead of purchasing equipment for multiple reasons, including:

Control expenses and inventory
Wide selection of equipment
Professional customer care / service
No need for maintenance or downtime
Save on storage / warehousing
Reliability
Equipment tracking
Conserve capital
Manage risk

Customers can range from professional contractors who need aerial lifts for several months to an average homeowner who needs a stump grinder for a weekend project.

Steps to Starting Your Equipment Rental Business

1. business plan.

Every great business out there today started with a simple idea. To transform that idea from something imaginary into something real, you should make a business plan that outlines your strategy and thoughts. Writing a business plan is one of the best ways to force yourself to think about your business from many angles. It also is a helpful document to share with potential investors and lenders.

When you create your business plan, it is important to keep your expectations realistic. Setting goals and metrics too high at the beginning can lead to wasted time and money down the road. Remember that there are always unforeseen costs and challenges with any new venture, so it is prudent to bake in padding and leeway.

A typical business plan includes the following sections:

Summary: Wait to write this at the end. This is the 30,000-foot view of your entire business plan summarized in a few paragraphs. This helps others understand the business plan without reading the entire document.
Company Description: Write about what your company will do, who it will involve (you and any others), where it will be located, what kind of equipment you will buy for your fleet, what hours you plan on working, etc.
Market Analysis: Understand the rental industry in your area. Get to know the rental rates in your area. Talk with people in the industry to understand who your main customers would include.
Competitive Analysis: List out the competition, what they do, how big they are, and how you plan to offer a better value proposition.
Product/Service Offering: Determine which types of equipment you will offer for rent. Also, make a road map of where you plan on expanding as your business grows. Will you offer parts and service too?
Marketing Plan: Figure out how you will tell the world about your new company. Create social media pages and advertise in local publications. Make sure you add your business to online directories such as Google Maps and the Equipment Radar Directory so people can find it.
Financial Plan: Spend a lot of time thinking about the capital resources you have to deploy and how you plan on deploying them. Most equipment rental companies borrow money from banks to make new and used machinery purchases. Figure out which lenders you can work with to buy your machinery.

2. Form Your Company

You should create a legal entity such as a corporation or LLC to separate your business interests from your personal interests. You must register your business with your state, pay a registration fee, and also register with the IRS . Once you have formed your company, you should open a bank account and deposit initial capital into it.

3. Purchase New or Used Equipment For Fleet

Many newly-formed rental companies start with just one used machine, and later they upgrade and expand their fleets over time. You can shop online for new and used equipment to buy your first equipment.

4. Create Safety & Risk Management Plans

Buy proper insurance to cover your business from accidents and injuries. Talk with your business insurer, so you understand what is covered and what is not covered.

Create safety guidelines for your shop, and teach employees how to handle the equipment safely. Make sure any dangerous areas in your storage or warehouse are safeguarded.

5. Organize Business Operations

Choose a store location. You will need enough space to store your equipment, an office area for you and other workers to work, a service area, a check-in/out counter to handle customers, and a showroom for equipment, accessories and more.

A nice-looking showroom can be a strong selling point for your business. It gives your customers an opportunity to look around and see what you have to offer. You should think of your showroom as your marketing platform.

6. Make Maintenance & Fleet Refresh Plan

You should pay close attention to the condition of your fleet. Inspect it after every rental, and perform both scheduled and unscheduled maintenance as needed. The top-performing rental companies typically have a systematized process to inspect, clean and renew equipment after it is returned from a job site.

As your equipment begins to age, you should consider selling your older equipment and buying newer equipment to keep your overall rental fleet relatively new. Large rental companies typically target an average fleet age of about 50 months (4 years old), which means that they sell equipment when it gets to be about 7-8 years old. Customers often prefer newer equipment that looks good.

Financial Planning

Rental rates.

Rental rates are often determined by local supply and demand for rental equipment in your area. Rates go up and down based on time of year, type of equipment and equipment condition.

Rental rate changes are very important to monitor. Each $1 change in rental rate is a $1 increase or decrease to the bottom line. When your rental rate changes, your other costs do not change much.

Typically most companies will provide daily, weekly and monthly rental rates. As the rental term extends, the average daily rate tends to go lower. Weekly and monthly rentals can often be more profitable for equipment rental companies even if their average daily rental rates are lower because there are not as many inefficiencies associated with them (transportation to and from the location, downtime for inspection and servicing, etc).

Utilization

Utilization is an important metric that you should watch carefully. Higher utilization typically means higher profitability. The equipment rental business is largely a fixed-cost business - your equipment, building lease, employee costs all stay about the same whether you have your equipment out on rent or not.

Utilization is a two-edged sword. If your utilization is too high and you do not have any equipment available for rent, then customers may be forced to go with a competitor. It's best to increase your fleet size if utilization goes too high, and reduce your fleet size if your utilization goes too low.

Seasonality

Construction tends to be very seasonal, depending on your geographic location. You should research the swings in seasonality to understand business trends during the busy summertime and slower wintertime.

Cyclicality

Equipment rental is susceptible to economic cycles. When the broader economy slows and construction pulls back, the demand for rental equipment also slows. Typically rental rates will soften or fall during a downturn.

Rental Industry Terms & Metrics

The industry uses several common terms to measure equipment fleets and financial performance. Below is a list created by the ARA to help you get acquainted with industry standards:

Original Equipment Cost (OEC)

Time (physical) utilization (tu), financial utilization ($u), fleet age (age), change in rental rate %rr.

Keeping a fresh fleet that is well-maintained and serviced is very important to managing customer relations and expectations. Typically rental companies will target an average age for the entire fleet. By regularly buying newer equipment and selling older equipment, the rental company can maintain a constant fleet age.

Below is a sample overview of United Rental's fleet statistics from its 2020 annual report :


	$500 for the first month
	40 cents per birdhouse
	$1.50
	$500/($1.50 - 40 cents)

Item	2020	2019
Fleet OEC (billions)	$13.8	$14.6
Equipment Units	615,000	665,000
Fleet Age In Months	55	50

Starting your own equipment rental company is within the realm of possibilities. Spend time researching your local market and creating a business plan, and soon enough, you will be ready to launch your new venture.

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Best Small Business Loans for 2024
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Best Business Loans for 2024

Every business needs funding, but choosing the right loan is key. You can’t go wrong financing with these reputable lenders.

Quick application
Low borrower requirements
Education for new borrowers

Variety of loan types and terms
Funding specialists included
Network of lending partners

Transparent pricing and terms
Fast approval and funding
Apply via accounting software

High approval rate
Fast funding for large loans

Approval within hours
Same-day funding

Why you should trust us.

To find the best business loans and lenders, our team of small business experts examined the market to find some of the best rates, the fastest approvals and the most efficient application processes out there. Our research included direct lenders and lending marketplaces, as well as alternative loans like invoice factoring and equipment financing. We met with these lenders and asked detailed questions about their application processes, borrower requirements, approval and funding timelines, and rates. We also reviewed reviews from real-life borrowers to see how well these lenders lived up to their promises. Learn more about our methodology.

What are Business Loans?

Business loans are funding sources — typically a bank or private lender — that support a small business’s launch or growth. Business loans may include term loans, usually repaid monthly with interest over a period of years; equipment financing, which uses the acquired equipment as business collateral; and lines of credit, which allow businesses flexibility in accessing working capital when funds are needed. Business loans may also include invoice financing — selling outstanding accounts receivable to a lender — and merchant cash advances, a typically high-interest loan repaid from your debit and credit card sales.

Best Business Loans of 2024

BusinessLoans.com: Best for Comparing Loan Options
Biz2Credit: Best for Marketplace Lending
Fundbox: Best for Line of Credit
SBG Funding: Best for Flexible Terms
Rapid Finance: Best for Fast Funding
Fora Financial: Best for Short-Term Loans
Noble Funding: Best for Customer Service
Balboa Capital: Best for Easy Approval
Crest Capital: Best for Equipment Financing
Accion: Best for Microloans

These lenders offer a wide range of financing options, including working capital loans, merchant cash advances, equipment financing, invoice factoring and term loans. Many alternative lenders also make it easy to get financing with online applications and same-day funding.

We researched the options to help you find the best business loan for your needs. Below are the best loan companies that offer financing for a wide range of businesses and use cases.

How We Decided

Our team spends weeks evaluating dozens of business solutions to identify the best options. To stay current, our research is regularly updated.

Compare Our Best Picks

Our Top Picks for 2024
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Best for
Loan amount
Repayment terms
Funding speed
Minimum requirements
Review Link

Our Reviews

BusinessLoans.com helps borrowers who are unfamiliar with the lending space understand and compare loans.
After a simple, quick application, you’ll receive assistance in comparing your loan options and choosing the best one for your circumstances.
Collateral is often required, and you might wait as long as one week for funding. This is several days longer than you’d wait with many other lenders on this list.

BusinessLoans.com launched in 2020 to streamline the loan application process and seamlessly connect borrowers with the best loans for them. The platform excels at welcoming borrowers with minimal knowledge about or prior experience with business loans. The company is known to work with any borrower to get them the funding they need — even borrowers who don’t meet the qualification criteria.

Applying for BusinessLoans.com funding is straightforward. You’ll provide about a dozen data points that you should almost certainly know offhand. The process shouldn’t take more than three minutes. The BusinessLoans.com algorithm will match you with lending partners that best fit your needs. The company works with over 35 lenders, so your likelihood of finding a lender is high.

Browse BusinessLoans.com’s homepage and guides to learn more about the lending process. The company is committed to demystifying loans and making them work for any borrower. It will teach you how to effectively compare loans while providing hands-on assistance. This is why BusinessLoans.com is our top pick for comparing loan options.

Biz2Credit offers various business financing options at competitive rates.
Its funding specialists match you with loans that best meet your needs.
Biz2Credit has tougher eligibility requirements than other lenders we considered.

We selected Biz2Credit as the best choice for marketplace lending because the company has a long track record of arranging small business loans and works with a network of lending partners to find you the best financing option. Since its founding, Biz2Credit has leveraged its network to fund more than $7 billion in small business loans.

We like Biz2Credit’s multiple loan options. You can apply for a term loan, a working capital loan, a commercial real estate loan , or an Employee Retention Tax Credit (ERTC) loan. Rates start at 7.99% and depend on your credit score. The better your credit, the lower your interest rate.

Biz2Credit charges simple interest — another unique feature we like that many business lenders don’t offer. Simple interest is calculated based on the principal balance each month. In contrast, compounding interest is calculated based on the principal balance plus any outstanding interest already accrued, which raises the loan costs.

To qualify for a term loan with Biz2Credit, you need a credit score of at least 660 and sales of $250,000 annually. That could shut out some borrowers, but it allows the lender to provide competitive rates. Biz2Credit offers an additional discount if you connect your business checking account .

With a Fundbox line of credit, you know exactly how much you’ll pay before drawing any funds.
This lender provides lines of credit as high as $150,000 and can fund your account 24 hours after approval.
To qualify for a line of credit, you must be an established business bringing in at least $100,000 in sales, which may be difficult for some small business owners.

We recommend Fundbox as the best lender for lines of credit because it has competitive rates and transparent pricing. When you get a line of credit from Fundbox, you’ll know exactly what the cost will be before you finalize the transaction. This helps you make informed decisions, and not many lenders offer this much transparency.

Fundbox can extend up to $150,000 and has repayment terms of 12 or 24 weeks. This time frame is shorter than what other lenders offer, but that isn’t necessarily a bad thing. A line of credit is not a term loan. It’s designed to provide working capital or peace of mind. If you need money to cover a pricey piece of equipment or a longer-term business expense, a term loan is the better option.

We like that Fundbox makes repayment easy with weekly installments through its Flex Pay program. Some business owners may prefer monthly payments, but paying weekly means smaller chunks come out of your cash flow . The lender also offers an easy online application and next-day funding. That’s another reason we selected it as one of our best picks. Time is money. The sooner you can get the cash you need, the faster you can put it to work.

Fundbox goes beyond lending when supporting its customers. Another feature that stood out to us is its integration with popular programs that many businesses already use. The lender integrates with Freshbooks, QuickBooks and Zoho, three of the best business accounting software platforms . Most recently, Fundbox added integration with the online job site Indeed.

Fundbox’s line of credit may not be for startups or those with limited sales. It offers competitive rates, quick funding and transparent pricing.

SBG Funding provides fast funding on loans as high as $10 million.
Small business owners receive favorable pricing and flexible terms on term loans, business lines of credit, equipment and invoice financing, bridge capital, and SBA loans.
SBG Funding requires a lot of documentation when you apply for a loan. That may not be appealing to time-crunched business owners.

Flexibility is important for small businesses. You don’t want to be locked into a loan for a long time. You also don’t want to scramble to find the cash to repay a loan in too short a period. Whether you need short-, medium-, or long-term funding, SBG Funding has an option for you. We like that SBG Funding’s loan terms can be as short as six months or as long as 10 years.

SBG Funding’s flexibility doesn’t end with its terms. You can borrow as much as $10 million, depending on the loan type. That allows you to grow with the lender. You may need a $10,000 short-term loan to start with, but later need a loan to buy a $1 million piece of equipment. SBG Funding can support that growth with its loan products.

SBG Funding is also willing to work with borrowers who have credit issues. It can make a qualifying decision in 24 hours and get funding to you the same day in some cases. However, SBG Funding requires more documentation to approve a loan than most other business lenders we reviewed. That may dissuade some borrowers. But with competitive rates, flexible terms and loans of up to $10 million, the extra effort may be worthwhile. That’s why SBG Funding is worth serious consideration if you’re looking for a flexible lender.

Rapid Finance has an easy online application, quick approval times and same-day funding.
Rapid Finance offers various loan options and flexible repayment terms.
If you have a low credit score, the interest rate Rapid Finance charges may make the loan too expensive.

Rapid Finance is true to its name, delivering fast funding to approved loan applicants. Both approval and funding can occur within hours, which is much faster than most lenders we reviewed. Rapid Finance offers merchant cash advances of up to $500,000. You repay your loans by giving Rapid Finance a fixed percentage of future credit card transactions.

To apply with Rapid Finance, you must provide a government-issued photo ID, a business tax ID , your business’s checking routing and account numbers, and the last three months of your company’s bank account statements. The application can be completed online in about 15 minutes if your documentation is readily accessible.

Fora Financial’s terms last as long as 15 months, and loan amounts range from $5,000 to $1.5 million.
The lender does not require collateral, offers flexible repayment terms and only requires three months of bank statements.
Fora Financial requires borrowers to have $15,000 in monthly revenue, which is a high hurdle for startups.

We selected Fora Financial as our best pick for short-term loans because it offers flexible terms of up to 15 months, has a quick and easy qualification process, and can lend small businesses up to $1.5 million. We like that Fora Financial caps its terms at 15 months. That is a shorter period than what many lenders offer, but you won’t pay as much compounding interest. It also means you won’t have to continue repaying a loan long after it has lost its value.

The lack of collateral or personal guarantees required for Fora’s short-term loans is a bonus. It’s one less thing to worry about when applying for a loan. Fora Financial is one of the few lenders that doesn’t charge additional fees. You only pay the principal and interest.

The lender’s application process is quick and easy. It takes 24 hours to find out if you qualify, and Fora Financial can fund your account within 48 hours after you’re approved.

Fora Financial has provided $3 billion in loans to more than 35,000 small businesses over the past 15 years. It offers quick approval times and short terms, making it a top contender for small business owners who need funding but want to pay off their loans quickly.

Noble Funding has issued more than $1 billion in small business loans. It has a good track record in the industry and has accumulated many positive customer reviews.
It offers a variety of loan types and terms to meet most small businesses’ needs.
You need a credit score of 650 or higher to be eligible for one of its loans, which poses a higher barrier to cross than some of the other lenders we reviewed.

We selected Noble Funding as our best pick for customer service because of the company’s long track record of issuing loans to small businesses, lack of upfront fees, and willingness to work with you to find the best loan product for your business. We like that Noble Funding focuses on providing top-notch customer service and has the reviews and ratings to back it up.

Noble Funding has been accredited with the Better Business Bureau for over 15 years and has an A+ rating. There are no negative reviews on the BBB and nearly 200 positive reviews on Trustpilot. That’s impressive for an alternative lender. Some lenders charge excessive fees or provide less-than-stellar customer service. Borrowers are quick to note flaws like these in their reviews of other lenders, which makes Noble Funding’s glowing assessments stand out.

We also like that Noble Funding understands that not every loan product will work for every borrower. It is willing to analyze your needs and find the best loan for your situation. That’s a refreshing level of customer service compared to other lenders we reviewed.

Noble Funding has been issuing small business loans since 2005. Consequently, it has a great deal of experience and knowledge to offer. The application is simple to complete, approval is fast, and Noble doesn’t require collateral or personal guarantees for some of its loans. Furthermore, Noble Funding offers flexible terms and affordable pricing.

If you don’t want to deal with a lengthy application process and burdensome paperwork requirements, Balboa Capital is for you.
This lender offers small business owners a variety of loans and flexible terms.
If you need a longer-term loan to cover a big purchase or expensive outlay, Balboa Capital isn’t for you. Terms only last up to 24 months for its small business loans.

We selected Balboa Capital as our best pick for easy approval because it makes getting business financing quick and easy. When you work with this lender, you won’t spend hours filling out a complex online application or scanning and submitting tons of documents. You can also expect a fast approval decision after applying.

For Balboa Capital’s small business loans, you can borrow between $5,000 and $250,000, and pay it back in between three and 24 months. These loans make the most sense for business owners who need a bridge loan to purchase inventory or run a marketing campaign. Since terms on these loans are short, it is not a viable option to finance expensive purchases, like equipment. However, Balboa Capital offers equipment financing as well.

Reputation also matters, particularly in the business lending market. Some unscrupulous lenders tack on hidden fees and charge exorbitant rates for their loans. Balboa Capital isn’t one of them. It has been in business for decades and is accredited by the Better Business Bureau since 1999.

Crest Capital offers flexible equipment financing options, with terms ranging from 24 to 84 months.
This lender offers fast funding and will let you finance equipment from private sales.
Crest Capital charges an administration fee, which may not appeal to some small business owners.

We selected Crest Capital as our best pick for equipment financing because it offers 100% financing, flexible terms, and loans up to $1 million. When financing equipment under $250,000, Crest Capital doesn’t require much paperwork, which is a huge positive. Typically, business owners purchase equipment when something breaks or when they’re experiencing rapid business growth . They’re not looking to go through a time-consuming, arduous process to get financing. However, if the equipment you want to finance costs more than $250,000, Crest Capital does require a lot of documentation to prove your creditworthiness.

Crest Capital is quick to approve loans and has same-day funding. It also offers more types of financing agreements than many rival lenders. You can finance new and used equipment and apply for Section 179 qualified financing, which allows you to deduct some or all the equipment’s cost.

Another reason we chose Crest Capital as the best equipment financing lender is its track record in the industry. Crest Capital has been providing small businesses with financing for decades. That experience is important. Financing can be complicated. You want to work with a lender with flexible payment terms and transparent pricing that knows what it’s doing. You’ll get that with Crest Capital, which is why this lender should be at the top of your list if you’re looking for equipment financing.

You can borrow as little as $500 or as much as $100,000, and Accion Opportunity Fund offers flexible terms and competitive rates.
Accion is focused on underserved markets, including women- and minority-owned small businesses.
Accion requires a lot of documentation when underwriting a loan, which may not appeal to all business borrowers.

Accion Opportunity Fund is our best pick for microloans because it focuses on working with underserved business borrowers and will extend loans for as little as $5,000. You get more than a small business loan when you work with Accion. We like that this nonprofit, which has served the small business community for over two decades, offers educational resources, training, coaching and networking opportunities. When you’re starting a business and juggling startup costs , you can use all the help and advice you can get.

It’s easy to apply quickly online for a loan from Accion;. You can easily reach this lender’s customer support line for assistance as you go through the application process.

We also like that Accion has relaxed qualifications. It’s hard for new business owners and first-time borrowers to get funding from other lenders, even for a small amount. That’s not an issue with Accion, which has no credit score requirement. You must also have been in business for 12 months to qualify for a loan with Accion.

Microloans can help businesses get off the ground, boost working capital, or chase growth opportunities. Accion Opportunity Fund makes it easy to get funding, even if you don’t have many sales or the best credit score. It should be at the top of your list for lenders specializing in microloans.

Choosing a Business Loan Provider

When seeking a loan, you must understand the ins and outs of the lending process, the lender’s qualification requirements, and loan terms to secure the capital you need without compromising your business’s future. As you compare various lenders, consider the following elements to ensure you choose the right loan .

Loan Application Ease

While you evaluate lenders, ask how long or detailed the application process is. Your lender will collect information about your business income and debts and use that to assess your ability to repay the loan. Some lenders require a lot of paperwork, while others don’t, depending on the loan size and term length.

If you need money quickly, select a lender with an online application and relaxed requirements about necessary documentation. Speed up the approval process by having certain documents ready, including your business’s tax returns, bank statements, financials, articles of incorporation and franchise agreements.

Many online lenders offer educational tools to help you understand common business loan mistakes that may be holding you back from securing a business loan.

Interest Rate

Small business loans accrue interest, which is the price you pay for a loan. Rates are either fixed or variable. Generally, alternative lenders offer a fixed interest rate. Your interest rate will depend on the lender you partner with; your business’s financials, credit score and years in business; and your personal financial history. It is important to weigh the cost of the loan against the benefits of borrowing. If the cost does not make sense for your needs, seek a lower-cost alternative.

Rules and Requirements

Lenders charge business borrowers money to access capital. That includes interest, an origination fee and other charges such as maintenance and late payments. Pay attention to the annual percentage rate (APR). That tells you the full cost of the loan, including fees.

The size of the loan also impacts how much interest you’ll pay. The loan term is the amount of time you have to repay the loan. Loan contract terms can range from as short as a few weeks to as long as several years.

Qualifying Criteria

Depending on the loan type and lender, the qualifications for approval vary. Most lenders look at your business and personal credit score, years in business, annual sales, and business plan . Lenders don’t want to lose money and will scrutinize you and your business to ensure you can repay the loan.

To build business credit , ensure your business’s legal structure is established, register the business with your secretary of state, and get your EIN (employer identification number ).

Business collateral is an asset you pledge to secure your loan. If you can’t repay the loan, you forfeit the collateral to the lender. Collateral can be your building (if you own it), equipment, accounts receivables, property, or something else of value. Lenders offering secured loans require the business owner to put up a certain amount of collateral. Unsecured business loans do not require collateral.

Many lenders also require a personal guarantee , a binding legal document in which you pledge to personally pay back the loan if your business can’t. If the debt is nondischargeable and you file personal bankruptcy , you’re still obligated to repay the loan.

Funding Speed

It is important to know when you’ll have the loan funds in your bank account so you can plan accordingly and avoid a cash crunch for payroll or other business operating expenses. Some alternative lenders can fund your loan the same day you’re approved, while others take a few business days.

Some lenders require you to provide additional documentation, such as tax returns, photo ID, bank and credit processing statements, or a voided check. Each lender has specific requirements.

There is much to consider when applying for a small business loan, such as costs and terms. The more information you have before shopping for a loan, the better prepared you’ll be to make a good choice and properly manage your business’s finances .

What Type of Business Loan Is Best for Your Small Business?

There are many business loan options aside from traditional bank loans . The one that makes the most sense for you depends on your credit score, time in business, and the amount you’re looking to borrow. Funding speed and specific terms will vary from one product to the next. With that in mind, here’s a look at the small business financing options available to you.

U.S. Small Business Administration loans are processed by lenders and banks. These low-interest loans are intended to help owners expand their businesses (e.g., buy a business, land or equipment) or recover after a natural disaster. The maximum amount you can receive from an SBA loan is $5.5 million.

There are four specific types of SBA loans.

SBA 7(a) loans: These are a good option for working capital, debt consolidation or buying equipment for your enterprise. You can borrow up to $5 million. SBA 7(a) loans feature a variable interest rate tied to the prime rate. Collateral is required.
SBA 504 loans: This loan type also has a cap of $5 million, with rare extensions to $5.5 million for manufacturing or energy-efficient projects. Many business owners use a 504 loan to purchase machinery or land. SBA 504 loans cannot be used for working capital or inventory. Interest rates are typically fixed and are based on five- and 10-year U.S. Treasury bond rates. No collateral is required.
Microloans: Microloans can be used for working capital and to purchase supplies, equipment or fixtures, and furniture. Rates vary from 6% to 9%. Loans are available from community-based nonprofits; the maximum amount you can borrow is $50,000.
Disaster loans: In case of emergency, disaster loans offer borrowers up to $2 million. They are designed specifically for small business owners who must rebuild after a natural disaster or global crisis. In late 2022, the SBA announced it would waive interest on disaster loans during the first 12 months. After that, the interest rate for for-profit businesses will be 3.04%.

SBA loans are in high demand — the agency issued over 62,000 7(a), 504, and microloans in 2022. But an SBA loan may not be right for you, which is why it’s important to consider all loan types.

With a term loan , you get a lump sum and must repay it in installments over a set period. Term loans have different repayment schedules depending on your business needs.

Long-term loans : These loans have terms of at least six years. They are typically used for big purchases, such as company vehicles or property.
Medium-term loans : These loans have terms ranging from two to five years. They’re commonly used to purchase business equipment or to fund expansion.
Short-term loans : These loans have terms of less than two years. They are typically used to purchase inventory, fill cash flow gaps for working capital, or meet other short-term cash needs.

Lines of Credit

Lines of credit, or LOCs , give business owners quick access to capital. There are no rules for how the money can be used, and you only pay interest on the money you draw. The lender determines the loan size and interest rate. Many LOC loans have qualification requirements such as a minimum annual revenue, the length of time your company has been in business, and minimum credit scores of 500 or higher.

Merchant Cash Advance

With a merchant cash advance , the lender offers merchants an advance in exchange for future credit card sales. You get access to cash quickly and must repay the advance daily via a percentage of your credit card sales.

Small business loans and cash advances differ. Advances are best for short-term needs, while loans are preferable for borrowers with the time and credit to obtain them.

Peer-to-Peer Lending

Peer-to-peer (P2P) lending is a loan from another business owner or individual investor interested in financing your business. This cuts out the need for banks. These loans have drawbacks and are not allowed in all states.

Unsecured and Secured Loans

An unsecured business loan doesn’t require you to put up collateral. However, you must have good credit to qualify. A secured loan requires collateral, including an asset, equipment, accounts receivable or real estate property.

Equipment Financing

Equipment financing occurs when a business owner takes out a loan to pay for equipment. The collateral is the equipment you are financing. Most business owners can get approved thanks to the collateral component.

If you don’t have the cash or desire to purchase equipment outright, consider leasing equipment .

Invoice Financing

With invoice financing, business owners receive an advance on unpaid invoices. This financing is also called accounts receivable financing. Invoicing companies can advance you as much as 80% of the value of your unpaid invoices. You receive the final 20%, minus any fees when the invoices are paid.

Alternative Loans

Alternative lenders are another small business financing option . These nonbank lenders provide loans to business borrowers. They’re typically more flexible than banks and have a quicker application process and funding time. The approval requirements are usually more relaxed than those of a bank. Any financing outside of a bank is considered an alternative loan.

Business owners have many options for accessing capital, all with varying costs and terms. SBA loans, term loans, lines of credit, equipment financing, private funding and alternative lending are popular options.

Business Loan FAQs

What business loans are the easiest to be approved for.

The answer to this question depends on how much money you need and how you intend to use the funds. Many lenders have minimum qualification requirements for annual revenue, time in business and the business owner’s personal credit score. This is helpful for startups that lack a financial history and can’t meet the requirements lenders have for more established organizations. Read our reviews to see which lenders have less demanding eligibility requirements.

What are the types of SBA loans?

Several types of SBA loans are available for business owners. Three of the most common include SBA 7(a) loans, SBA 504 loans and microloans, which we discussed in this article. The SBA 7(a) loan is ideal for small to midsize businesses, with low interest rates and long repayment terms. The 504 loan is well-suited for purchasing real estate or paying for construction or renovations. Finally, microloans are best for very small businesses that must offset startup or early expansion costs, because these loans are capped at $50,000.

Are SBA loans fixed rate or variable?

The interest rates on SBA 7(a) loans are typically variable, though they can occasionally be fixed rate. SBA 504 loans and microloans are fixed rate.

Do you need to provide a personal guarantee if you're a startup?

If the loan you’re considering is unsecured (i.e., no collateral is required), you’ll usually need to provide a personal guarantee. This is the case for most startup loans because your guarantee is how lenders protect themselves if you can’t repay the loan.

Will lenders look at my personal credit?

If you’re a startup, your company doesn’t have a financial history. Instead of evaluating your business’s credit, lenders will check your personal credit. This is a common lender practice, especially for new business owners. Sometimes looking at your personal credit is the only option lenders have.

How important is your credit score when applying for a small business loan?

Your credit profile significantly impacts whether or not you’ll be approved for a small business loan. Unless your business has been around long enough to establish a good credit history, lenders will look at your personal credit profile to assess your creditworthiness. The higher your credit score, the better.

Many lenders also require collateral to underwrite the loan. The collateral could be your home, car or other private property of value. If your business fails to repay the loan, the lender can come after your collateral.

What credit score is necessary to qualify for a small business loan?

The minimum credit score you need to qualify for a business loan ranges from 500 to 640 or higher. The requirements depend on the type of loan you’re seeking and your lender.

For an SBA Express loan or SBA 7(a) loan, borrowers need a score of at least 600 or 640, respectively. If you’re interested in the SBA CAPLines program or an SBA export loan, you need a credit score of at least 660. SBA CDC/504 loans require a minimum score of 680, and for an SBA microloan, a score of at least 620 to 640 is preferred.

Online lenders often have more flexible requirements. Some provide loans to those with credit scores between 500 and 550. However, if your credit score is that low, you will likely pay higher interest rates.

Can borrowers with bad credit get approved for a business loan?

Getting approved with bad credit can be challenging but not impossible. Some lenders, such as BusinessLoans.com, don’t use your credit score to determine whether you qualify for a business loan. Some weigh your financial history and business success more heavily than your credit score. If your credit score isn’t great, shore up other parts of your business value, such as revenue or sales.

Does applying for a business loan affect your personal credit score?

Often, to be approved for a small business loan, you must personally guarantee the debt. This means you will repay the loan yourself if your company doesn’t. The lender has every right to go after you individually if the loan is delinquent, and that could hurt your personal credit score. The same applies to a business line of credit. If you personally guarantee any loan and the business can’t repay it, you are on the hook for the money owed.

Is there specific documentation required to get approved for a small business loan?

You may need to provide lenders documents that verify your annual business revenue and profit, bank statements, personal and business tax returns, a business plan, business licenses and permits, proof of collateral, a balance sheet, a copy of your commercial lease, and any legal contracts and agreements you already have in place.

What is the fastest and easiest way to get a business loan?

The traditional way of borrowing money is to apply at a local bank or credit union. However, this route can take weeks before your business is approved and funded. Online lenders tend to do a better job in this regard because they can get loans into business owners’ hands in days or hours.

Alternative lenders typically offer several loan options, including working capital loans, merchant cash advances, equipment financing, term loans and invoice factoring. Depending on the type of loan you want, you could have money in your bank account in less than 24 hours.

Whichever option you go with — a traditional lender or an alternative lender — you can speed up the approval process by having your business documentation ready, including tax forms, bank statements, financials and other documents related to your enterprise.

What are some assets business owners can use as collateral for a loan?

Acceptable collateral varies. In general, anything valuable can be used. Common types of collateral for business loans are equipment, vehicles, real estate, inventory and accounts receivables. Some lenders may require you to offer personal collateral not tied to your business. This could include vehicles, real estate and cash in the bank.

What are typical business loan terms?

Several types of business loans exist, all with varying terms. Business loan terms can be as short as a few weeks or as long as 25 years. A traditional bank loan term might last from three to 10 years. Medium-term business loans last two to five years, while short-term business loans are typically three to 24 months in length. SBA small business loans have terms of up to 25 years, but 10-year loans are more common.

What payback terms can you get for a merchant cash advance?

A merchant cash advance gives you quick access to the money from your credit card sales. However, it’s a costly and risky way to access cash, and it comes with complicated terms.

With a merchant cash advance, you receive an upfront payout and repay it either with a percentage of your future credit card and debit card sales, or with daily or weekly fixed payments. Either way, you’ll make regular payments, plus fees and interest, until you’ve repaid the advance.

The lender assesses how likely and able you are to pay back the advance, which impacts the fees you’ll pay; your riskiness to the lender is known as the factor rate. The higher your factor rate (i.e., the greater risk the lender determines you to be), the more fees you’re on the hook for.

Where can I apply for an SBA loan?

You can apply by searching for lenders approved by the SBA. Armed with that list, comparison shop and apply directly on the lenders’ websites or through their mobile apps.

An easier option is to use the SBA’s Lender Match tool, which connects borrowers with SBA lenders. Answer a series of questions, which the SBA says takes five minutes. Two days later, you’ll receive an email with offers from lenders. It’s up to you to pick the lender, but once you’ve settled on one, you apply directly with it. (The SBA’s Lender Match tool is not for its disaster relief loans and assistance.)

Can you still get a COVID-19 EIDL loan through the SBA?

The COVID-19 pandemic EIDL loans expired at the end of 2021 . Until May 6, 2022, small business owners could request an appeal or reconsideration if they were turned down. This was also the final date on which the SBA accepted applications for loan increases.

What loan can you get through the SBA now that the COVID-19 SBA loan program is over?

You can still get an Economic Injury Disaster Loan if your business was impacted by a fire, hurricane or other natural disaster.

What is a business installment loan, and why would I need one?

An installment loan is financing you use to pay for equipment or property over a set period. Unlike a credit card , which gives you a revolving line of credit , loan payments are fixed over the loan’s term. Once you pay off the loan, the debt is settled. Interest rates on installment loans are typically lower than credit card interest rates, but more risk is involved. If you can’t repay the loan, the lender claims your collateral.

Installment loans are common for purchasing property, expensive equipment, business vehicles or other high-priced items. You can also use an installment loan to fund your startup. If you want the loan for this purpose, you’ll need good credit, collateral, a sound business plan and a willingness to sign a personal guarantee.

What is a business line of credit, and how does it work?

A business line of credit is a revolving loan that business owners tap as they need funds to grow or fill cash flow gaps.

Instead of getting a lump sum and paying interest on the full amount, you pay interest on the money you draw from the line of credit. Typically, a line of credit ranges from $1,000 to $250,000, though some lenders may issue higher amounts. Most lines of credit have a variable interest rate, which means the amount you pay changes depending on the prevailing interest rate.

A business line of credit can be secured or unsecured. With a secured line of credit, you must provide collateral.

With an unsecured line of credit, you don’t have to provide collateral, but you may need to sign a personal guarantee.

Which bank is best for small business loans?

A bank loan is often the best option for small business owners with a strong credit score, a well-established and growing business, and valuable collateral. Sure, it may take longer to get the cash, but it’s often cheaper than using an alternative lender because interest rates tend to be lower. If you’re applying through a bank, the best first place to try is your local bank. It already knows you and your business and will be more inclined to offer favorable terms to an existing customer than to a stranger.

Online lenders vs. traditional banks: Which one is better?

We recommend assessing how much money you need to borrow and for how long. You don’t want to take out a long-term loan for a short-term cash flow problem. Nor do you want to wait weeks for the funding you needed yesterday. If fast funding is your priority, an online lender is better.

The same goes for your credit profile. If you have less-than-perfect credit, you’ll do better with an online lender versus a bank. If you care about the cost of borrowing above all other considerations and are in good financial standing, choose a bank.

What to Expect in 2024

Credit availability and rising interest rates are two major themes for business loans in 2024. Over the last two years, the U.S. Federal Reserve significantly raised its benchmark interest rates. The WSJ Prime Rate, an index of prime rates from 30 major banks, has ballooned to 8.5%, which remains unchanged from the same period in 2023.

Over the last few months, inflation readings have fallen to the mid-3 percent range. More recently, the central bank has paused its rate hike campaign, and many analysts believe that rates are at or near a peak. Federal Reserve Chair Jay Powell has publicly indicated that rates could fall somewhat in 2024. For now, policymakers are holding interest rates at elevated levels and assessing the impact on the economy.

The good news for businesses in need is that many lenders are still approving small business loans at high rates. A down economy and rising inflation may leave many small business owners looking for additional funding. Alternative lenders are ready to meet that demand, and it also appears that the SBA will have more money to lend in 2024.

Additionally, artificial intelligence and machine learning are reducing loan approval wait times and increasing the speed with which funds are deposited into business owners’ bank accounts. Credit scores still matter, but lenders are increasingly scrutinizing other aspects of a business owner’s finances to ascertain their creditworthiness. Altogether, these changes are designed to make getting a small business loan easier and faster in 2023.

In response to rising inflation, the SBA has expanded its size standards for what is considered a small business. That means more businesses are now eligible for SBA loans and federal contracts.

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