When it comes to starting a small business, one of the major challenges is to find a good amount of cash to kick start things the right way. There’s a slim to none chance of you winning a lottery or getting some large inheritance. Therefore it is almost impossible to fund your business this way. Luckily there are other ways to reach your business goals and maintain a good financial record. Here are some general steps you can take to be successful in your pursuit of good funding.
Make a plan:
To start our Guide on funding a business, you need to first focus on making a quality business plan. A good one includes the expenses, the expected sales chart, and the profit the business can bring in. It is always better if you have some actual sales with real customers and have a portion of your services or products ready to be delivered. When planning out your business investment pitch, don’t ask for excess funding and make sure that all the details, including the purpose of usage, are ready. Once you have figured out every detail of your business along with a clear pitch, adopt one of the following methods to bring your vision to life.
Apply for a loan:
The tradition of various local banks and credit unions lending out small loans has been one of the main sources of quality business growth. Online vendors have joined them by offering good credit to entrepreneurs. According to a 2018 report, the digital lending platform market was valued at 4,798.28 million.
There a few points you need to keep in mind when applying for a small business loan:
- If your business is new and does not have any major assets, you will be asked to offer collateral. Putting up your prized possessions and, most importantly, your house as security will be required if you can’t return the loan. As risky as it might be, it can make the lenders see your serious attitude and offer you a good loan.
- If you are looking for a flexible repayment option, then seek out institutions that provide loans through the U.S. Small Business Association (SBA). This way, you will be insured against loss of 85% on loans that are less than $150k and 75% on loans more than $150k.
- Rather than going to national banks, go to lenders in your community so that there’s a better chance of getting a loan. They will be more interested in helping out local small businesses.
- If you find yourself not settling on any loan terms with your local lenders, you might want to go for an online lender. The chances will be less, but there are opportunities for small businesses.
Credit cards to the rescue:
Even though there’s some major risk involved, but it is overlooked considering you get to bootstrap your new business on your credit cards. But rather than going for a personal card, apply for a corporate one. You will be able to get a modest amount of credit limit on your corporate card even if your company is new and without actual sales and profit.
There are two important factors that you need to keep in mind before you go for the credit card method:
- Credit cards have pretty steep interest rates, so using one can be expensive, considering the interest keeps increasing on outstanding balances.
- Your credit score can get low if you have a balance which exceeds a 30% utilization rate of your credit card’s borrowing limit.
Look for private investors or crowdfunding:
One of the popular tactics to fund your business plan is to get others to join in with you and offer financial help. It is best to employ legal aid and have a mentor around to help you decide what role will your investors play and get them to sign a contract, which will include realistic expectations.
- Your family and friends are the most obvious choice in looking for investors since there is an in-built trust, and you can make a deal with them with fewer strings attached. But it doesn’t mean you can lack professionalism.
- You can also look for Angel investors who invest in profitable business ideas and require a proper business plan and financial records. You can even get some quality business insight and tips from them.
- Websites like Kickstarter are crowdfunding platforms in which people support companies and business projects by contributing some amount. Learn about how to do an effective crowdfunding campaign and get your business started.
The Final word
No matter what your business plan may be as long as you are passionate and driven about it, the steps mentioned above will help you succeed. Finding the right source of funding might be difficult, but if you go by the book and do everything right, you will find your financial help. Learn from your experiences and move forward.