Starting a Business Requires Money. How Do You Get It?

You have a passion. You have been thinking about starting your own business for a long time. The only thing stopping you from executing your plan is the money to fund it. Where do you start?

Securing the appropriate financing is essential for any successful start-up. However, most new entrepreneurs discover rather quickly that raising capital is not easy. In fact, it is downright hard in most circumstances.

There are steps you can take to prepare for the process. Confidence comes with being well-prepared. This is also the time when professional guidance may prove helpful, especially as to the financial information needed for the loan proposal.

Here are some things to consider:

Finding Sources for Money

There are several options when looking for financial support. Don’t ignore any option out-of-hand. Look at each, investigate and then make your decision. Some of the options are:

Personal Savings

A start-up is an untested business model. Start-ups have no history for lending institutions to review.  There is an expectation that you will be investing your own monies in your business. If you are not willing to risk capital, why would the bank? Many things are considered by the lending institution. Economic conditions certainly influence conditions. Is your business in an industry that is trending up or down? What is the failure rate for your type of business? How competitive is your industry? What is the status of the local economic environment?  Denver looks much better than Detroit right now.  All of these things can affect the willingness of the lender to lend. Because of these concerns, most new start-ups have a high degree of self-funding. The money can come from savings or other personal resources. Be careful about using credit cards to finance your business, the terms may not be the best.

Friends and Family

Certainly, family and friends may be your biggest supporters and they want to help. Often this money is loaned interest-free or at a low interest rate, which can certainly help the new business owner. However, in order to ensure that Thanksgiving dinner continues to be a fun event, these loans need to be treated like a loan from a stranger. You should present your business plan to the family member or friend, demonstrating that this is a good investment. If a loan is given, there should be a promissory note with scheduled payments.

Banks and Credit Unions

This is the most common source of funding, banks and credit unions, including micro-lenders. You must be able to prove that your business proposal is viable and sound.

Venture Capital Firms

These firms usually help expanding companies grow in exchange for partial ownership or equity.

Understanding the Lending Process

Whether or not you were ever a Boy Scout, it is important to follow one of their core principles – BE PREPARED. If you approach the lending process unprepared you will send the unintended message to the lender – “High Risk!” The picture you must convey to the lender is that you are prepared and organized. You must be very clear about how much money you need, the purpose of the loan and how you will pay it back. Your start-up has no credit history. Your own personal credit history will play a major role in the bank’s decision.

There are two types of basic loans: short-term and long-term.

A short term loan generally has a maturity of up to one year. These might be working-capital loans, accounts receivable loans and lines of credit.

A long-term loan is for greater than one year, but usually less than seven years. Real estate and equipment loans can maturate up to 25 years. These loans are primarily used for major business expenses such as purchasing real estate, construction, durable equipment, furniture and fixtures, vehicles, etc.

Putting the Loan Together

A loan proposal is often another name for a business plan. Lenders make loans, but they must make loans that get repaid. A solid, well-written and researched plan with solid financials improve your chances of loan approval.

For more information regarding the business plan process, please check out local resources at:

Metro Denver SBDC (Small Business Development Center), 1145 Market Street, Denver, CO – http://www.denversbdc.org

or

North Denver SBDC (Small Business Development Center) at Front Range Community College, 3645 W. 112th Avenue, Westminster, CO – http://www.northmetrosbdc.com/north-metro-sbdc

You can also check out our Apis Business Solutions website under “Apis Hive – Banks and Other Lending Sources” for some great lending resources.

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