Do you have an innovative business idea but you’re concerned about finance? Are you right now asking questions like, “How do you finance a startup business?” or, “What are the sources of finance for small business start-ups?”
Indeed, you may have heard it said that what you need to start a successful business is a great idea and not money. However, as much as that may be true, an idea will only get you so far. You must have a plan to turn that idea into reality. And this is where money comes into play.
Definitely, you need money to get your great business idea off the ground. It’s just like the old saying, “You need money to make money.”
At the barest minimum you will need money for things like product development, securing your location, procuring inventory and the resources necessary to complete your services. And, after you launch, you’ll need money to expand the business and of course, money to live on until your business become successful!
So, unless you have the money on hand, startup finance is going to be one of the issues you will deal with when you step out to build your own business.
In this article I want to share with you a few ideas on how you can easily find the needed funds for getting your business off the ground.
Sources of Finance for Small Business Startups
There are a number of ways that small business startups can source for capital. These include drawing on personal savings, getting loans from friends and family, and angel investors. But not many entrepreneurs have the privilege of getting funding from these sources. For such aspiring entrepreneurs the option open to them is to access funding through more traditional means like borrowing from the banks.
Unfortunately, getting business startup loans from commercial banks is a big challenge. This is because startup businesses are considered the most risky loans that a bank or lender might encounter.
When you approach even the banks that you have done business with before you may be surprised that they are not keen on committing their funds to your great idea.
Why Are Business Startup Loans Risky?
There are number of reasons why start up loans are considered as risky by banks and lenders. But they can all be classified into the four C's of Credit which are, collateral, capital, capacity, and character.
Every lender expects you to have some form of capital before you are considered credit worthy. But as a new business it is clear that you’re going for the loan because you don’t have such capital
Also, it is expected that you have collateral. But again, as a new business you have little or no collateral. While in most cases you may use your personal assets you can also seek a co-signer with assets to pledge in order to overcome this demand.
Now, capacity is s track record showing that the business has the capacity to generate enough money to pay back the loan. But then as a new venture you don’t have this track record which the banks or lenders can bank on.
The final “C” which is character is primarily about a good credit rating. While this may not necessarily get you a business startup loan, a poor rating will definitely get you turned away quickly.
From the above it means that before you walk into a bank and demand a business loan you’ll need to prepare yourself.
Business Startup Finance Made Easy!
From what we have discussed thus far let’s now look at what you can do to ensure that the sourcing of your business startup capital does not in any way hinder the realization of your dreams.
1. Consider Your Needs
Walking into a bank and telling the loan officer about your idea will not get you financed because the loan officer, or any other funder, doesn’t really care about your actual idea. He or she cares about how you plan to implement it and how profitable it will become. Only then, will you be able to talk money.
This is why people write business plans.
Your business plan will detail your idea in a too-much-information format, which works well when you approach potential financers. You will explain your idea in detail, your business structure, marketing plan, how you will make money, future expansion plan, and your finances, both current and future projections.
You must tell people why your idea will be successful and how you will make it successful. You must tell people how it will be profitable. You mustn’t leave any stone unturned, including the monies you will need for any patents and/or trademarks and insurance coverage.
If you aren’t sure what insurance you’ll need, contact an insurance agency.
2. Consider Your Sources
Once you have your plan in place, think about who is best to approach for money. It might be somebody you know, it might be a total stranger, and it might be both.
As we have mentioned earlier there are many ways startups get the funding they need to open their doors. But your first step should be to look in the mirror. How can you finance your business yourself?
The reason why this is important is, most financers will be more likely to lend you money if they see you have invested your own money into your venture first.
This makes sense because if you’ve put your own finances at risk, you’ll be more likely to succeed. And so, if you can put in some of your own money financiers will have more faith in your drive to make your business a success.
You can bootstrap your own assets to get money. Do you own your car? Do you own your home? Do you have savings, credit, and investments that you can turn into cash?
If you answered yes to any of these questions, you might be able to borrow against or cash in some of these assets to get money in your hands to open your business.
Next, look at other funding options. These include your family and friends, business partners, and crowd funders willing to donate money to your opening costs.
Angel investors are another approach to employ. These are wealthy individuals willing to loan you money in return for a stake in your business. This works, because they also offer valuable advice.
Finally, don’t forget to check out the U.S. Small Business Administration and your local, state, and federal government agencies. All are vested in helping small businesses open and grow in their communities, and many offer loans and grants to cover the costs.
Employ any or all of these to get the money you need to start your business.
While many aspiring entrepreneurs might find business startup financing complicated it shouldn’t really be. So, if you’re right now seeking for funds for your business startup or you hope to do so some time in the nearest future then you don’t have look any further. Use the above information as you guide and you’ll happier for it!