Starting your own business can be difficult! For one, an entrepreneur needs a stable source of financing not only for establishing the business, but to also keep it going. Making sure you have enough working capital is one of the keys to running a successful business. With that said however, most new business owners start up with a very limited budget. A new business owner needs to know where to find financing and to leverage it to cover their business needs.
Steps To Take Before Approaching A Financial Source
Before you approach any lending source, a new business should have:
- A Business Plan. There are plenty of good software on the market that can help you create a good business plan. Remember this is the first contact a financier will have with you and your business. You don’t want a poorly written business plan killing your chances of getting approved. Your business plan should clearly presents the nature of the business, the type of business proposed, the business’s target market, the business’s owner/s experience in the industry, a clearly defined use of funds, and other important financial information.
- Pull your own credit. Keep in mind that all financial sources will pull a credit report . If you have any credit problems, firstly try to fix them. If you have done all you can to improve your credit and there are still some blemishes, include a letter of explanation. Secondly, always make sure the banks you approach work with people with your particular credit score. If you have C credit don’t approach an A credit bank!
- Get To Know Your Potential Financing Sources: Research the banks and financing companies you plan on approaching. Make sure they fund businesses in your industry. Make sure they will approve your credit. Find out what kind ( if any) security they require
Most Common Places To Find Financing
My mother used to say, “all roads lead Rome!” That was just her way of saying there are many different ways to accomplish a goal. Lets go over a few of the different loan options available to business owners.
Going to the bank is the first thought that enters any business owners mind. And admittedly, they are one of the biggest sources of financing for a business. Bank loans are considered a traditional financing source. With traditional financing guidelines. One of the first things I ask a client is if they have gone to their bank for the financing, and if so what was the outcome. Of course if they are calling us, I have an idea of what that outcome was. Bank loans are a great resource, but can be a little hard for a new business to obtain.
Despite strict requirements, bank loans are a good place to start looking for financing. Especially if you have good credit, and have a relationship with the bank already. Typically, bank loans can be paid for a longer repayment period which gives a business more leeway as it tries to establish itself in the market. Preparing the required documentations, having the right business plan and an excellent credit report should make the process easier for those who would like to apply for a bank loan.
Credit cards are one of the easiest ways to finance your business. You only have to make sure that you do it the right way! Credit cards can be abused to easily. When using your credit card to finance your business, make sure you have created a budget! Always keep in mind the interest rate your paying,and don’t miss a payment! If you have good credit you should be able to get a credit card in your businesses name. If you have bad credit you might be forced to use a credit cared you already have in order to finance your business. For those of you that have incorporated make sure you call a board meeting and officially add this credit card into your company. Sole proprietors don’t need to do so. Regardless, you have to make sure you use this credit card ONLY FOR BUSINESS PURPOSES. You won’t be able to use it for personal purchases. You can create an accounting and tax NIGHTMARE if you co-mingle funds.
SBA loans (Small Business Administration) are loans that are given by banks but have a guarantee from the government. A lot of people actually think the SBA issues loans, they don’t. There are SBA approved banks and financial institutions that provide the actual loan. The SBA has a lot of different programs available for small business owners. The most well known are the SBA 7a, SBA 504 and the SBA 8a. The SBA 7a program is the one most people have heard of. It can be used for most business purposes except to purchase collateral in the hopes of future increase (speculation) or to repay the current business owner for money he has invested in the business. The SBA 504 loan is usually used for large construction and land projects and the SBA 8a is a program set up to help minority owned business. Requirements for approval are different for each program. Most of our SBA lenders like clients with decent collateral and / or sufficient working capital to run a successful business.
Business Equipment Leasing
A little known source of financing, but growing in its popularity, is equipment leasing. Equipment leasing allows a business to obtain all the equipment it needs to open its doors, while requiring only a small down payment. Documentation needed is usually an application, an invoice/s for the equipment and bank statements or tax returns to prove you can payback the lease. If the equipment lessor provides start up leasing, they will accept personal tax returns or bank statements in lieu of business tax returns or bank statements. They do like to see that you are setting up your business right! Its a good idea when submitting you send your resume and show that you have at least opened a bank account in your business name.
Another a reason why many business owners are opting to utilize equipment leasing is that the credit requirements are very flexible. Even a business owner with bad credit can still obtain an equipment lease. At the end of the equipment lease, a business has a choice of owning the equipment or returning the equipment to the leasing company after the lease term. Most of our financial sources that provide equipment leasing will provide a start up business with up to $75,000 in financing.