Starting a business can be exciting but it requires a LOT of planning. You have probably come up with your business plan already. And know what types of services or products you’d like to offer your customers. The planning stage can be a long one, but its well worth the effort! Once you know what you will be selling, how you plan on selling it and where. You next have to think about the financing. How are you going to finance this new venture? Do you need to buy a lot of equipment? If your new business didn’t make money for the first 6 months, have you budgeted enough working capital to make it thru the lean times?
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 and fact based! As an ex-bank loan officer, there is nothing worse than having a would be business owner hand you a business plan that is totally set in a fantasy world where every other person in their area buys from them! You can prove your businesses plans feasibility by being able to produce local case studies or if you are doing something new. Show them that the community is ready and eager for your business.
Be BOLD! Visit some business or consumers in your area and ask them if you were able to provide them w/ your product or service, would they buy? Get them to put it in writing and take it to the bank with you! For example, we had a gentleman apply for a loan to start his own logging business. His credit wasn’t good, but he had a decent amount saved up for the business and the best point going for him, was he walked into the bank with 3 contracts from local businesses that wanted to sub out work to him. Unfortunately his credit fell outside of our guidelines, but we were easily able to place him with one of equipment leasing partner companies and they got him the equipment he needed despite his credit, based on the fact that he had the contracts, he had the experience and he some working capital available to him.
Keep in mind that there isn’t a bank in the WORLD who will be interested in funding a business that is based on unrealistic expectations.
Startup Business Loans
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.
One of the best place to find a start up business loan is with a SBA backed bank. If you have the credit, financial resources and collateral. You will find the best rates and terms there. Outside of SBA based loan programs the 3 most popular ways to obtain unsecured start up financing are:
- Credit Cards- easiest method but can land you in big trouble if you
- Family and Friends – treat it like a business even if its Grandma loaning you the money, put it in writing
- Crowd Funding – start 6 months before you need the money MINIMUM.
Some forms of secured start up business financing are:
- Equipment leasing – secured by the equipment it financing
- Factoring – secured by your accounts receivables
- Merchant cash advances – based on your future credit card / debit card sales
In the end, all financial organizations are looking for new businesses with a solid business plan, owners 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.