You have probably come up with your business plan already, or at least you have a general idea of what types of services or products you’d like to offer your neighbors (or maybe even offer nationally). There are multiple methods of finding funding, and other than handouts, all of them involve some preparation and hard work. These types of funding options are worth investigating. Otherwise, you may never get the new business financing needed to get off the ground.
Startup Business Loans
Getting a small business loan means getting yourself in a position of being able to prove that your business will be profitable. The first step is often having good personal credit, especially if you haven’t had a very successful business or haven’t been open for very long. Having good personal credit proves that you are good at managing your own personal finances. The bank will be able to depend on you to pay on time, and they can see what kind of comparable credit you have handled in the past. Comparable credit means that you have financed something of nearly the same value as the loan you are seeking. Many times I see a great credit score, but the deal is still un-fundable (without a strong co-signer) because there is no comparable credit. For example client has a 720 credit score but only has 2 credit cards with the highest credit limit handled of $7500. He comes to us and wants $100,000 to start his business. Thats just not going to happen. Client has never financed anything near to that amount and will require a strong co-signer and additional collateral in order to get the loan approved. .
If your business has already been established, show the financer your current financial situation. If you’re able to move some product and make some money, it will be easy to show them that you can expand your operations. Likewise, it makes sense to show a financer what you aim to do with the money, how much profit it should make, and how easily you will be able to pay off your loan. These pro-forma statements are vital.
For a startup, you’ll likely have a small amount of money and no proven track record to show to the bank. That is why the business plan is extremely crucial. You must show a plan that will be easy to understand. The more you can prove that your plan and business will bring in money (without being hokey), the easier it is to find a bank willing to lend to you. Remember, they want to make money too. They aren’t going to be interested in funding something that you haven’t bothered to organize and is unrealistic.
Finding New Business Financing
If you already have a good history with a bank, start there. Using your existing relationships is often your best bet. This is especially helpful if you’ve paid off a mortgage or other type of loan without issue. If this doesn’t work out, then look for banks that are actively seeking finance new business ventures. Search online or in your local newspaper to see which banks or financial organizations are actively seeking startup businesses in order to finance them.
If you’ve made your way through banks and credit unions without luck, then it’s time to consider other methods of new business financing. Don’t forget the SBA, although to get approved for them you generally need to be a home owner with some equity. You should also consider social lending, liquidating some of your assets, or borrowing the money from a relative.
In the end, all financial organizations are looking for new businesses with a solid business plan, owner with a good credit history, and some experience in the industry that they want to start their business in. While startup business financing is considered high risk, a strong business is likely to thrive given the right startup capital, a proper budget, and a lot of hard work.