There is no doubt that money makes your business go. But it
is very important that you don't try going to a bank to get
it when you've just started in business. Banks generally make
loans only to businesses with operating histories. You will
find below some alternatives, some strategies and some things
to think about as you go about finding the money to make your
The first reminder is that personal savings should be considered the primary source of funds for starting a business. In case if you haven't started already, start now to begin accumulating cash through personal savings.
Apart from that, don't overlook the Small Business Administration (SBA) loan guarantee programs available for start-up businesses. With a SBA guarantee program in hand, your bank will be more than happy to talk with you!
Lastly, start your search for financing with a good credit rating. As a matter of fact all sources of financing or credit have come to rely on a four-letter word to score your credit worthiness: FICO which can be termed as a numeric method, using just three digits, to predict the likelihood of your paying your credit as agreed. Generally speaking FICO scores range from 365 (not good) to a high of 850 (great). Furthermore the score evaluates your credit payment history, number of open accounts, overall credit balances and public records such as judgments and liens.
How Much Money Do You Need
Remember that the cash flow control form will spell out all of your sources of income and expenses. For instance, some expense items might include:
• Purchasing supplies and inventory while waiting to get paid
• Moreover paying payroll and rent
• Purchasing equipment and fixtures
• Most importantly getting a computer
• Purchasing the business
It is of utmost importance that you prioritize those areas where your options are limited to paying in cash, and review your alternatives where there may be another way. For example, it is not mandatory to pay all cash for a delivery truck when you can rent or lease one. Next comes the step of reviewing what might serve as collateral for your loans.
Few credits is granted on an unsecured basis, such as credit cards, but most small business loans are secured by the assets of your business, your personal assets, or both. Unsecured depicts that there is no collateral granted for the loan. Examples of unsecured are mentioned below:
• First and foremost credit cards
• Unsecured lines of credit (like you get daily in the mail)
• Friends as well as relatives
• Lastly secured Loans
Theoretically speaking secured loans mean that there are assets pledged to secure the payment in the event you are not able to pay. Examples of this are mentioned below:
• Firstly computer lease
• Secondly home mortgage
• Car loan or in other word lease
• Small Business Administration loan is also quite pivotal
Normal types of collateral are equity in your home, accounts receivable, inventory of the business and equipment. In an ideal scenario lenders go through an evaluation of the collateral to determine how much they can lend against it. Few of the important variables as to what kind of loan terms you can get are:
• Number of years in business is quite pivotal In general this is your
track record and is very important. Banks usually needs three
years while others are less stringent.
• Size of your company and the amount required Quite a number of times
financing institutions vary in the way they service the public.
For instance, you would probably not get a car loan and a large
corporate loan at the same place. In that scenario do your research.
Ask around that will certainly help to get to the right spot
Loans (Debt) vs. Investment (Equity)
You are most likely accustomed with a straight loan (debt) where the lender gets an interest rate and fees. On the other hand equity is where the money raised gives the investor an ownership interest. This is normal in the sale of stock to a limited number of investors or participation by venture capitalists. More often the sale of stock is highly regulated by state and federal agencies and you will need the help of a corporate lawyer. Generally the initial sale of stock to the public (initial public offering or IPO) is deferred until an earnings history is established. Sometimes such sort of discussion arises with friends and family who want to be your partner. Take this into account carefully because they will then participate in the increased value of the business and have voting rights. It is quite important that you be careful! Your lawyer as well as accountant would be appropriate sources for more information on this subject.
The Art of Getting the Money
This begins by knowing what your lender wants. A normal way is to simply ask. An ideal way is to ask a friend or business advisor such as your CPA.
For a business loan, the most common things required are mentioned below:
• Business financial statements is quite mandatory
• Business tax returns is also crucial
• Business Plan with budget or as a matter of fact projection
• Personal financial statements is also necessary
• In addition personal tax returns
Then comes the next step of answering questions about your business, and be ready to highlight your financial performance both in the past and in the future. You will be more impressive in case if you have carefully thought-out and become familiar with your plan. Bring your accountant in case if you need help.
Apart from that be prepared to tell them why you need the money. "I just require the money," does not inspire confidence or the fact that you have thought it through. It is quite crucial that you give them some detail.
Furthermore propose a repayment plan. Examples of different structures are mentioned below:
• First and foremost a line of credit, payable at your discretion but subject to renewal annually by the bank
• In addition term loan payable monthly over ___ years starting on ____ date
Lots of places have some flexibility. It is worth noting that potential lenders appreciate that you are thinking about paying them back instead of just getting the money.