Getting funding for a new business venture is one challenge that leaves many entrepreneurs scratching their heads. Among other things, funding your business off the ground will require you to know the ins and outs of the one you intend to start, as well as your current financial position. One option you can consider is a loan from banks or other lending institutions. Below are tips on how to acquire a loan to actualize your dream.
Make a business plan before you seek funding
When looking for financial aid from a bank for your new business, you’ll be required to divulge your personal information, as well as what it is all about. For your business, loan request to be granted by any lender, it’s imperative that you have a good plan. Until you have come up with a good and thoroughly written plan, in all likelihood, you won’t be able to tell the amount of money you require, or whether you can repay it on time or not. Submitting a good plan goes hand in hand with the loan application process.
What are the components of a good plan when looking to finance a new business? You may ask. Well, for starters, a plan should incorporate a detailed analysis of the market you want to serve. Secondly, it should clearly outline the collateral or value of assets you wish to use to obtain the loan. Most importantly, it should contain the goal you expect the business to achieve. Lastly, a plan should show the ways in which the funding will help it to reach potential clients, as well as steer clear of other competitors.
Pursue your dream of being your own boss
If you are planning to ditch your 9 to 5 job for self-employment, you need to know what you are getting into. Starting your business can be rewarding, but hurdles are inevitable. And the more information you have about the niche you want to venture into, the more prepared you”ll be. For you to also be successful as your own boss, carefully determine your startup overheads. Before you hand in your resignation letter, you need to work out just how much it will cost you to hit the ground running. Although some business ideas require less capital than others, you need to ensure that your finances will give your new business an opportunity to succeed.
Where to get funding to start a business
Most startup businesses get their funding from personal savings. Whether it’s part of your salary that you have saved up for months or family inheritance, using money from your own pocket is a popular choice and shows your commitment to other potential funding sources like investors. Taking out loans from banks would be another option. However, in the absence of collateral like, let’s say, real estate or if your credit score is low, it would be difficult to obtain one. To increase your chances of landing a bank loan, you may want to find a co-signer who should have a good credit score and will take responsibility for the loan in case you default.
Aside from a business loan, venture capital can get you some serious funding. Venture Capitalists (VC) will require you to have an in-depth plan and will back you financially in exchange for equity in the business. Most Venture Capitalists are highly selective on the businesses they invest in and will mostly go for ones that exhibit signs of generating profits. Nowadays, the internet has become a popular source of funding as well. There are numerous crowdfunding websites like charities, artists and entrepreneurs where owners can post appeals for funding. However, prospective entrepreneurs who look for funding from a crowdfunding platform need to be well acquainted with the rules of the game. As such, a number of crowdfunding platforms will hold onto the cash amassed until a certain objective is achieved. If the objective isn’t realized, the funds collected may be returned to the benefactors.
Get family and friends to invest in your business
Seeking funding from your friends and family might look like a daunting route to follow. However, this is often a good step to take before you move on to external funding. Friends and family can be much easier to convince compared to bank officials. In fact, there is a great likelihood that they will look beyond your present-day bank balance and credit rating when deciding whether or not to finance your business. Moreover, chances are, they won’t demand strict repayment rates. One thing to remember of course is that taking up loans from friends and family has its set of risks. If your business venture fails, your relationship might be affected. If you fail to repay your bank loan, you don’t have to worry about awkward moments at Christmas get together parties with the loan officer. If you don’t pay back your Uncle, for instance, you may even fail to see eye to eye with him. If you opt to borrow money for your new business from those close to you, ensure that the terms and conditions of the loan are clearly written out. This includes the amount borrowed, the interest charged and the repayment period agreed upon.
Just do it
There are a number of options that can help you put together the financing for your new business. If you fail to land aloan, friends and family can come to your rescue. As a side note, risk-taking is part and parcel of entrepreneurship. Launching and growing your own business will require you to put your finances and career at stake. To be a successful entrepreneur, you need to embrace the risks that come with it.