Challenging economy can present opportunity

If the current economic downturn has inspired you to start a business of your own, you’re not alone.

Research shows that recessions can spur entrepreneurial activity. In 2003, as the United States recovered from a recession, an average of 300 of every 100,000 Americans set up new companies each month, according to the Kauffman Foundation. Firms less than five years old accounted for all net job growth in the U.S. What’s more, more than half of 2009 Fortune 500 companies were launched during recessions and bear markets.

For those considering the opportunity to start a business in today’s economic climate, it’s time to do your homework. Here are tips for aspiring business owners interested in starting a small business:

Research and write your business plan

It’s a valuable road map for your journey to business ownership. It should describe the essential components of your company, provide a clear framework to help you stay on track and help you tell your story to potential lenders and investors. A typical plan includes a description of your business and your plans for marketing, financing and management. It also answers the quesation, how much will it cost to start my business and how will I pay for it?

Know the five Cs

The five Cs of credit describe the areas that every lender will analyze when you seek financing for your business, so be sure to provide all the details:

n Capacity — How do you intend to repay the loan?

n Capital — How much of your own capital have you invested in the business?

n Collateral — What forms of repayment security can you provide the lender and what secondary sources and assets are available to ensure payment?

n Conditions — How will the money be used? In other words, will it be used for working capital, additional equipment or inventory?

n Character — What is your personal credit history and financial reputation?

Build credit history

Having a good credit history for the company becomes increasingly important as your operation grows and builds its customer base. If you have the ability, you may want to start your business while you’re still employed. This can ease the financial strain as you determine the potential demand for your products and services.

Talk about options

The No. 1 reason new businesses fail is under-capitalization. It can take more than two years for a new firm to turn a profit, so it’s vital to build and keep reserve financing. The financial services industry has developed innovative, flexible funding alternatives for business owners. Many banks support government and non-profit agencies that help start-ups and small companies.

With the right idea, careful planning and financial support and advice, you can start building a business today that will ride the wave of the economic recovery ahead.

Resources for starting a business

An abundance of resources are available to help entrepreneurs and new small business owners. Start by browsing some of the helpful guides and tools offered for free online:

n The U.S. Small Business Administration is a great place to get help. Log on to sba.gov and go to “Starting Your Business” for a wealth of information.

n SCORE (score.org) is a non-profit organization that provides counselors for small businesses and partners with the SBA.

n The National Federation of Independent Business (nfib.com) has a “Business Resources” section with links to articles on topics such as starting a business, financing and creating a business plan.

n The Mat-Su Small Business Development Center offers small business workshops and training. Contact them at 373-7232 or visit aksbdc.org.

n AKSourceLink (aksourcelink.com) hosts virtual workshops and contains an online library with advisory articles and resources to help small businesses.

• Wells Fargo Business Online (wellsfargo.com/biz/education) features educational newsletters, videos and podcasts, and links to government and trade associations supporting small business.

David Baker is a senior business relationship manager for Wells Fargo in Wasilla. He can be reached at 376-6606.