Most people fund their establishment phase, for example, with equity of their own (usually by mortgaging their property), or through friends, family and associates. This can be tricky because friends, family and money often don't mix, but at this stage, you don't have much choice. Another alternative is to attract a business angel - a person who is often retired or independently wealthy, but who wants to contribute both money and expertise to an interesting business (www.businessangels.com.au) or try a capital-raising system like the Australian Small Scale Offerings Board (www.assob.com.au).

Once your business is established and you are happily selling your product or service, then you will probably qualify for business finance, such as: leasing (for plant & equipment); factoring (where you 'sell' your invoices to a lender at a discounted rate); bridging finance (where you borrow against a payment event in the future, such as an inheritance or property settlement); or financial instruments, such as Letters of Credit for importing and exporting, or Bank Guarantees and Deposit Bonds for securing contracts and financial transactions.

How much do I need to borrow?

Establish how much you need to borrow and add 10% for contingency. It's better to have too much money than to need to borrow again within 12 months - it doesn't look good. Work this out by totaling your annual fixed overheads, plus cost of sales, plus approximate costs of borrowing (in other words, the interest and fees/charges). This means that if the worst scenario happens and you make no sales during the year, at least your business can continue and you make your payments to the lender.

What is the finance for?

You may want to expand to a new market, gear up for a large contract, finance new equipment, smooth out cash flow, refinance existing loan facilities or restructure the business. The purpose will dictate the type of finance you will choose: whether it's short-term finance, leasing finance, a cash-flow loan, bridging finance, a mortgage loan or factoring.

What kind of collateral do I have?

Collateral can be any asset that can be repossessed and sold. Property is the most common form, although owning property is not essential and some lenders (usually non-bank lenders) will look at other types of collateral such as debtors' registers, plant & equipment, cars or antiques.

What ability do I have to repay the loan?

Most lenders look at your ability to pay back the loan from your business income however not having sufficient income may not be a barrier to getting finance. A flexible lender will look at other types of deferred income for example, if you have a large number of unpaid invoices (debtor's register), or if you can sell or mortgage a valuable asset.

The face-to-face meeting

This is where the lender aims to get an understanding of your business and determine how they will tailor the finance to your needs. You should also use this opportunity to determine if the lender suits your business and to start developing a relationship with the account manager. A good guide is if the lender's organisation is not too much larger than your own business, in other words: Will they be too busy to return your calls? Are they transparent with their terms and conditions? Are they interested in your business?

Your office environment

If the lender visits your office for the face-to-face meeting, they will get a snapshot of your business. Ask yourself: Do you offer a pleasant office environment for clients? Are your staff happy with their working conditions? Or are they harassed by contractors and creditors calling to get paid? If the loan proceeds, the lender essentially becomes a supplier or creditor, so visiting the office will give them a good indication of how they will be treated and if the loan will be repaid as agreed.

Explaining your business

Demonstrate that you have a good understanding of your business. This includes presenting cash flows, assets and liabilities, aged debtor and creditor registers, the cost of sales - but more importantly, the story behind the numbers. Being able to clearly talk about the business gives the financier a good understanding of the owner, as well as the business. Talk about your product or service, the market, how you communicate with your market and how you attract new clients. Discuss your business' strengths, weaknesses, opportunities and threats (the 'SWOT analysis').

Creditors, aged payables and defaults

At this point, show you are using good accounting software and are paying suppliers and creditors on time. What payment priority do you have in your company? (the priority should be: 1) staff wages; 2) suppliers; 3) lenders). If there are any 60 days + creditors or debtors, how are you managing them? If you have any defaults with suppliers, it's best to be upfront about them. There may be valid reasons and in many cases it's just a matter of explaining the situation to the lender.

The application paperwork

Loan applications are similar for all lenders, but be aware that this stage involves giving the lender permission to conduct a personal and business credit history check by signing the 'Privacy Statement'. Each loan application you make creates an entry on your credit file so don't make an application for a loan unless you plan on proceeding with it. If you suddenly start making a number of loan applications or if you've made more than a few over the past few years, this will affect your ability to borrow in the future. Protect your credit file, apply for loans thoughtfully and monitor access to your file. Go to: www.vedaadvantage.com/home for your business file and www.mycreditfile.com.au for your personal file.

Develop a relationship with the lender

Remember, finding finance for your business is about getting what is right for you and your business. When you have found the right lender, develop a relationship with them and let them know how the business is going every few months. They now have a vested interest in your success and want to see you do well.